France faces mounting pressure to loosen labour laws

4 in 5 new hires on short-term contracts
By Michel Rose / Reuters
|labour-reporter.com|Last Updated: 11/18/2015

PARIS (Reuters) - Pressure is mounting on the French government to reform strict labour laws as evidence suggests they are deterring companies from hiring full-time staff and could act as a brake on the country's sluggish economic recovery.

It can be extremely difficult to dismiss permanent workers in France - the process can take years as companies must take cases through labour courts, and often involves compensation payouts. Four out of five new hires in the country this year have been on short-term contracts.

Such temporary status is a drag on worker motivation and company productivity, according to Stefano Scarpetta, director of employment, labour and social affairs at the Paris-based Organisation for Economic Co-operation and Development (OECD).

It needlessly increases employee turnover and reduces the incentive to invest in training, he said.

When 24-year-old Marine from Marseille landed a job at a big cosmetics company in Paris last year, she thought she had made it. But on arriving, her employer was unwilling to give her a permanent job - and the precarity of the one-year contract she got instead made landlords unwilling to rent her a flat.

In the end, she used a forged ID to pretend she was a student and, with her parents as guarantors, found a studio in the Paris suburb of Levallois.

"I don't even feel guilty because I pay my rent, and I know there will never be a problem for that," said Marine, who did not want her surname published because of her rental situation.

Her fixed-term contract is called a CDD - Contrat à Durée Déterminée. She would prefer to have a CDI, or Contrat à Durée Indéterminée - a full-time job. In 1982, 95 per cent of the French workforce had a CDI. By 2012 it was only 86.5 per cent, and for the under-25s, 48 per cent.

The OECD's Scarpetta said southern European countries whose labour market rigidity was dragging on economic growth had made reforms to address the issue. "Now it's up to France to see whether it wants to follow, because the risk is that they are the one lagging behind."

The inflexibility of France's labour market is one factor capping the country's growth at 1.5 per cent over the medium term, debt rating agency Moody's said in its decision to downgrade France in September.

French unions and leftist politicians, however, say moves to loosen labour rules have increased poverty and inequality in countries like Germany and Britain, simply creating more low-paid, part-time jobs as well as "zero-hour contracts" where an employer has no obligation to provide any work.

ITALY, SPAIN

In Italy, the government earlier this year eased firing restrictions for large firms earlier this year, introduced an open-ended contract in which rights gradually increase with seniority and offered temporary tax breaks for companies that hire workers on permanent contracts.

Although it is still early days, the first batch of data seems promising. The share of new hires on temporary contracts dropped to 67.8 per cent in Italy in the second quarter, from 68.6 per cent a year ago.

In France, by contrast, the latest data available show an increase in new hires on CDD contracts, to 85.3 per cent in the first quarter from 84.4 per cent over the same period a year ago.

Italian trade unions and other critics, however, say firms in the country are simply taking advantage of the temporary tax breaks, and question whether the trend will continue.

Successive Spanish governments have also changed laws in the past five years to reduce the cost of firing employees on permanent contracts, depending on the economic circumstances of the company - and the labour issue will be a central one in a general election next month.

Spain's unemployment rate dropped from 22.9 per cent in March to 21.6 per cent in September, according to OECD data, while Italy's fell to 11.8 per cent from 12.5 per cent. In France, the rate rose to 10.7 per cent from 10.3 per cent in the same period.

It is not clear exactly what the main factors behind the movements are, however, and both Italy and Spain's economies suffered a bigger hit than France during the debt crisis so are in rebound mode.

But six years into a recovery, France is one of only four EU countries where unemployment has not fallen over the past year.

TEMP TRAP

It takes, on average, 15 months for French labour courts to issue their first ruling if a worker challenges a dismissal - and with a 65 per cent appeal rate, most of these cases take almost three years in total to be resolved. And when judgement finally comes, courts rule against employers in around seven in 10 cases, according to ministry of justice data.

But the job security of a CDI holder, hard won over the post-war period, is held dear by the traditional left of the ruling Socialist Party. That faction, along with many in the trade union movement, welcomed a decision by the constitutional earlier this year to block a government move to cap the amount of compensation workers can win in unfair dismissal cases.

Fabrice Angeli, a representative of France's largest union CGT, said the terms of CDIs must not be watered down. "Workers need stability. It doesn't mean they have to stay in the same company all their life," he added.

CDDs are also a less effective stepping stone to a more permanent jobs in France than their equivalents in other countries. Only 20 per cent of French temporary workers in 2008 had moved into full-time permanent contract by 2011. According to OECD figures that is a worse record than in Spain, Italy or Portugal, and compares with about 50 per cent in Britain.

Economists say such temporary jobs can trap people, with companies renewing them for the maximum 18-month duration and then hiring another candidate on another short-term contract rather than turn them into permanent jobs.

The rigidity has also made France less able to rebound following the global financial crisis, they say.

"This lack of fluidity contributes to the French labour market's low capacity to absorb shocks as well as to the development of unemployment," said Helene Baudchon, France Economist at BNP Paribas.

Meanwhile French Economy Minister Emmanuel Macron, from a centrist background and a relative youngster himself at 37, said this week that he planned to resubmit his compensation cap plan.

"I hope it will be implemented as soon as possible, whatever bill it's in."

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