In its annual country report released on Monday, the IMF turned up the heat on France for labor reform. The Washington-based lender called for a “powering up” of Hollande’s labor reforms to tackle the “significant rigidities hinder[ing] the economy’s capacity to grow and create jobs.”
Socialist President Francois Hollande, who has suffered since inauguration the largest fall in popularity of any French President in the past 50 years, has already been under considerable pressure from a citizenry fatigued from anemic and oftentimes negative economic growth and rising unemployment since 2008. Yet he still hasn’t delivered on reviving France’s flailing job market.
That’s because he’s too focused on devising government schemes, such as giving subsidies to small businesses who hire young people and retain older workers, to avoid making real changes to business-crushing labor regulations that have come to be entitlements within French society. Hollande’s changes to these laws thus far, in an attempt to draw attention away from his inaction on structural reform, are merely cosmetic, as I point out in a February CS Monitor article.
These reforms only increase flexibility during economic downturns, and they do nothing to change the employer’s fundamental and burdensome obligations to employees.
First, firms still cannot lay off workers to improve competitiveness when the business is healthy; they can only make economic dismissals to preserve competitiveness when already in financial straits. In France, it ought to be legal to fix small problems before they become big.
Second, businesses remain obligated to assist laid-off employees in finding other jobs and in retraining them for their new positions – a distinctly French phenomenon. For businesses with more than 1,000 employees, this limbo period before dismissal can last from four to nine months.
Third, reform merely reduces the period for laid-off employees to legally challenge their dismissal from five years to two. Some progress! Not only does 1 in every 4 French employees bring a case to court, but French labor courts are the least business-friendly in Europe, with employers losing 75 percent of cases, according to the Organisation for Economic Co-operation and Development.
The agreement also increases taxes and fees for hiring workers on temporary contracts. This hits businesses hard because 8 of every 10 new hires are on these contracts, according to French Labor Ministry estimates. This was a union demand to discourage the use of temporary work, which is a competitive threat to union-protected permanent contracts.
The reforms especially harm French youth, as more than half of those employed now jump from job to job under temporary contracts, according to Eurostat. Understandably, businesses don’t want to take the risk of hiring an employee they can’t dismiss later.
France needs to increase labor flexibility, not create government programs that add needless complexity to a labor market that is already difficult to navigate for businesses. Hollande is playing a losing game of charades. It’s time for him to roll up his sleeves and deal with the difficult political battle that real reform entails.