Proposed Reforms Sustain French Labor Market Divide

François Hollande refuses to touch protections that make it almost impossible to fire French workers.

French president François Hollande speaks with his economy minister, Emmanuel Macron, at the Elysée Palace in Paris, September 26, 2014
French president François Hollande speaks with his economy minister, Emmanuel Macron, at the Elysée Palace in Paris, September 26, 2014 (Elysée)

French president François Hollande’s proposed labor reforms don’t go nearly far enough to revitalize a sclerotic jobs market.

Among eighteen measures unveiled on Tuesday to encourage hiring are a €4,000 bonus for entrepreneurs who employ their first worker and extending the period during which companies can employ people on a temporary basis to eighteen months.

Temporary work contracts account for 80 percent of the jobs created in France, where unemployment has remained stuck at around 10 percent since Hollande took office in 2012.

However, most workers are still on long-term contracts that come with generous benefits and high job security.

Excessive regulations

Hollande, a socialist who has angered his left-wing and trade union allies with tax relief for business, is shying away from touching protections that have created a divide between typically older workers who are almost impossible to fire and younger workers who struggle to get a decent job.

Earlier this year, the OECD urged France to simplify and shorten layoff procedures in order to encourage hiring.

In February, Hollande bypassed parliament and used emergency powers to enact labor reforms that shortened arbitration procedures and opened up protected professions, such as pharmacists and notaries.

But excessive regulations and high social-security contributions from employers still hinder labor mobility and add to labor costs which, at €34 per hour, far exceed the European average of €23.

Burden

Relatively high productivity partially justifies the higher costs of French workers, but that is no consolation to the millions of French who are out of work.

France’s Inspectorate-General of Finances last year recommended liberalizing entry barriers and fees. Doing so could add .5 percent to economic growth over five years, it said, and create 120,000 jobs.

The OECD also called on France to lower public spending — which, at 57 percent of economic output, is higher than in almost any other country.

Specifically, it said France should reduce the tax burden on labor.

Although the French economy is projected to grow 1.1 percent this year and 1.7 percent next year, long-term trends are uninspiring. Annual per capita growth has been below the OECD average for the better part of two decades while unemployment is higher than in most other developed countries.

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