Sarkozy Promises $550 Million to Fight ‘Worsening’ French Unemployment
French President Nicolas Sarkozy unveiled 430 million euros ($550 million) of measures to promote job creation and said he’ll make more structural proposals later this month.
The measures announced after a so-called “Crisis Summit” with unions and business leaders today include more retraining, reduced charges for small companies hiring young workers and 1,000 new employees for job centers.
The proposals, to be presented in a televised speech before the end of January, may include shifting some employee costs to value-added taxes from labor charges, overhauling retraining for the unemployed and creating a new partnership between the state and banks to finance industry, Sarkozy said after the meeting.
“We all agreed that in a serious economic situation and a worryingly worsening job market, we need strong and rapid responses,” said Sarkozy, who faces re-election in three months and is trailing in polls. He said the money promised today will be redeployed from elsewhere in the state’s budget, and won’t add to the deficit.
Unions welcomed the measures announced today, while saying they’re still opposed to Sarkozy’s key proposal of shifting social charges to value-added taxes as they don’t agree that high labor costs explain French unemployment.
Today’s meeting, which came just days after Standard & Poor’s cut France’s AAA credit rating by one level, was scheduled last month by Sarkozy to seek ways to boost employment by making French labor cheaper and more flexible.
Rising Costs
“In a world that’s so completely global, we can’t put such a load on labor charges and exclude making imports pay their share,” Sarkozy said in the text of a speech handed out by his office. He said the cost of labor has risen faster in France than Germany and “a large part of the difference comes from the charges that weigh on salaries.”
Sarkozy didn’t make specific proposals today on how much of the labor charges he plans to shift, nor say whether it would come from the portion paid by employees or employers.
Polls show that most French people are hostile to the so- called “Social VAT” and unions say they won’t accept it, arguing that it will make consumer goods more expensive and blaming the government’s austerity measures for lost jobs.
“Around the table we all agreed that the job situation in France is getting worse,” Bernard Thibault, head of the CGT Union, said as he left the meeting. “But we didn’t agree on the diagnosis. The President is convinced that it’s explained by labor costs being higher in this country. We don’t agree.”
Elections
A BVA poll for BFM TV on Jan. 12 showed 55 percent of the French are opposed to shifting labor charges to sales taxes, while 43 percent favor it. A CSA poll on Jan. 4 for communist newspaper l’Humanite said that 64 percent are against it and 33 percent are in favor.
Today’s meeting was attended by seven cabinet members, leaders of five unions, and three business organizations.
The measures announced would allow companies facing falling orders to keep workers at lower pay and shorter hours, with the government picking up a part of the cost.
“France must stop shedding its industrial blood,” Sarkozy said in Berlin on Jan. 9. “That’s why we must find ways to cut the cost of labor to remain a major manufacturing nation. From this point of view, what our German friends have done with their industry is unquestionably an example” to follow.
The German government, in a series of measures last decade, cut labor charges, raised sales taxes, and gave companies more ability to adopt their own labor contracts. The result was a “stealth devaluation” within the confines of the euro that Sarkozy would like to replicate, said Eric Chaney, chief economist at Axa Group in Paris.
Exports Rise
Between 2000 and 2010, German manufactured exports rose 126 percent, according to data from the World Trade Organization, while France’s 50 percent increase in exports was even below Italy’s 72 percent rise.
With French unemployment at almost 10 percent, compared with 6.8 percent in Germany, Sarkozy needs new ways to create jobs and pay for the welfare state.
In his speech, he said unit labor costs rose 20 percent in France between 2000 and 2009, compared with 7 percent in Germany. For a gross salary of 2,500 euros a month, a French employer pays 40 percent in social charges and a German employer 20 percent, he said.
“The charges on production in this country penalize everyone, from the companies that want to invest to the employees themselves,” Laurence Parisot, head of the Medef, France’s main business lobby, said after the meeting. “We should discuss how to shift some of these costs to other taxes. A subject that was once taboo is now being talked about.”
Hollande’s Lead
Sarkozy trails his Socialist challenger Francois Hollande in the polls ahead of April and May’s two-round presidential elections.
Hollande, in a visit to a steel factory yesterday, said it was an “illusion” to think that playing with tax rates would make France more competitive.
“I’d prefer that we seek competitiveness from a higher ground, by investing in the future and in training,” he said.
Sarkozy said today he’s “never thought for one second that the competitiveness of a company or economy depends solely on compressing the cost of labor: innovation, training, mobility of labor, quality of products, and productivity also contribute to competitiveness.”
To contact the reporter on this story: Gregory Viscusi in Paris at gviscusi@bloomberg.net
To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net
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