France’s President Macron Pushes for Labor Law Reforms

Once again, we are disappointed by video of France’s ugly side — the specter of union members blocking roadways to protest yet another policy they don’t like.  This time they oppose President Macron’s update to French labor law.  Mindful of decades of rigid labor laws, France’s Prime Minister Edouard Philippe, saidLabor law is not the first cause of unemployment, but no one today can say that our labor law stimulates job creation.

Despite labor’s predictable protests, Macron is determined to take remedial action that will address France’s chronic 9% unemployment and lackluster attractiveness to foreign investors.  When investors look for a base of operations in the EU, France is physically attractive, but it is well-known for hyperactive labor unions and rules that are hostile to employers.  In contrast, German unemployment runs at 4% and attracts one-third more foreign investment than does France.  Macron believes France should learn from Germany’s pragmatic approach to labor laws.

In reaction to French laws that bond employer and employee far too tightly, French employers resort to temporary employment contracts that now cover 16.2% of all employees, but four out of five temporary jobs are for less than a one-month duration.  One month on-task does not foster acquisition of job skills that lead to labor productivity.

Macron’s determination to remedy France’s decades of bad labor habits has relevance for the US.  Removal of labor law inefficiencies will help US firms with operations in France.  For example, the reforms can lift the ban on layoffs by foreign firms in some circumstances.  US investors in widely held firms, such as Total SA, Sanofi SA, BNP Paribas, LVMH, AXA, L’Oreal, Airbus and other French firms, should benefit from higher efficiencies and better financial results under these new labor laws.

Macron is imposing labor law reforms as quickly as possible.  He believes the following steps should be taken early in his 5-year term:

  • Allow businesses to void employee contracts incompatible with new labor law.
  • Obligate employers to negotiate with just one employee union. Currently employers must negotiate with multiple unions for the same employee.
  • Limit fines for unfair dismissals. Currently fines are often unreasonable.  Business lobbies in France and elsewhere in Europe complain that the time and unpredictable expense of laying off workers is a strong deterrent to hiring.
  • Change rules for justifying layoffs. Currently, workers can’t be dismissed if the employer has a financially healthy overseas subsidiary.
  • Allow “permanent” to mean the life of a project, as would be relevant in construction.

For unknown reasons, Macron also wants to increase the level of unemployment compensation by 25%.  Unemployment compensation is capped at a monthly 7,000 euros; it is set at 67% of the paycheck before dismissal.  Workers pay into the unemployment fund but the government covers any deficits the fund incurs.  However, the amount and duration are set by the ex-employer and relevant labor union.  Under today’s practice, an unemployed beneficiary faces weak incentives to accept a decent job offer.

The CGT union, a very left-leaning group, accused the Macron government of being “ultra pro-market” and did not join the negotiations, although the more centrist unions did negotiate the above reforms with Macron.  Public opinion in France was supportive (55%) immediately after Macron’s election, but it has slipped by one-third in recent months.  If he succeeds in keeping the reforms in play he may chip away at the high unemployment level and reduce foreign need to brawl with French labor unions.  While not the unions’ first choice, the reforms will bring new jobs that should please everyone else.

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