Hollande Faces Having to Force Labor Revamp as Talks Sputter

President Francois Hollande may be forced to unilaterally overhaul French labor rules as employers and unions struggle to find common ground in final negotiations today and tomorrow.

Hollande, who called for the talks when he took office last year, wants the parties to find ways to give employers more flexibility when the economy slows while also improving job security sought by unions. The Socialist president has repeatedly said he’ll act on the issue if the two sides fail to reach an accord on their own.

The president is seeking to stem a 19-month-long increase in jobless claims and improve the competitiveness of an economy that has barely grown in more than a year. A key stumbling block is a union demand for employers to face a punitive tax on short-term contracts that’s opposed by France’s small-business lobby.

“Getting agreement between the social partners is going to be extremely difficult,” said Antonio Barroso, an analyst at Eurasia Group in London. “The negotiations are stalled. The actors around the table have extremely different perspectives.”

After pushing through a 20 billion-euro ($26 billion) payroll tax credit for businesses last year, the labor negotiations are the second significant plank of Hollande’s plan to improve French competitiveness in the wake of the euro area sovereign debt crisis.

Labor costs that are high relative to its neighbors and rigid working rules have contributed to France’s record trade deficit and surging unemployment, economists say.

Labor Costs

The European Commission, the International Monetary Fund and the Organization for Economic Cooperation and Development have called on France to do more to bolster its competitiveness.

“France has continued losing export market share,” the commission said Nov. 28. “The losses are set to continue looking forward if decisive policy action is not taken.”

Among issues being discussed by representatives of employers and labor are the ability of companies to cut working time and pay when the economy slows, to move employees geographically or across divisions, an extension of health benefits and limiting legal constraints on job cuts.

France has the euro area’s second-highest unit cost of labor after Belgium, according to an April 2012 Eurostat report. France’s cost of 34.20 euros an hour compares with Germany’s

30.10 euros, Italy’s 26.80 euros and 20.60 euros for Spain.

Companies have also said one of the biggest obstacles to hiring is the “Code du Travail,” a 3,200-page labor rulebook that decrees everything from job classifications to leave for training to the ability to fire.

Own Devices

For now the government is leaving the unions and business groups to their own devices.

“The government has no intention of intervening or commenting until Friday night,” Najat Vallaud-Belkacem, the government spokeswoman, said yesterday. “Either they reach an agreement and we introduce a law that takes the agreement into account, or they don’t agree and the government takes responsibility and introduces a law with the changes we’d like to see in the labor market. There are tensions in the talks but I think it’s normal.”

For unions, lack of job security is the main issue at a time when 3.13 million people are looking for work in France, the highest level of jobless claims since January 1998.

A worsening economic climate has resulted in thousands of job cuts at companies from carmaker PSA Peugeot Citroen and Air France-KLM to drugmaker Sanofi.

Large Differences

The rigidities of France’s full-time work contracts have driven employers to increasingly use short-term contracts, leading to a two-tier labor market.

Of the 21 million job contracts signed each year, only 3 million are permanent, with the rest being short-term pacts. Of the 18 million short-term contracts, 14 million are for less than a month, according to Louis Gallois, former head of Airbus SAS parent European Aeronautic Defence and Space Co., who was asked by Hollande to write a report on French competitiveness.

“The labor market today is fundamentally unjust,” Laurent Berger, leader of the CFDT union said on France Info radio. “It leans on the people in the most precarious situations. If there’s no tax on short-term contracts, there’ll be no accord.”

Employers say the plan isn’t realistic and will deter hiring.

“Abuse of short-term contracts is closely watched and there are already penalties,” Genevieve Roy, vice president for social affairs at the CGPME small business lobby. “Workers have rights to sick leave or maternity leave and we’re supposed to be paying more tax to replace them? This won’t create jobs.”

Political Setback

For Hollande, a failure of the talks would amount to another political setback after two months in which he backed down on a threat to nationalize an ArcelorMittal steel plant and his plan to tax earnings over 1 million euros at 75 percent was struck down by France’s top court.

Only 37 percent of voters are satisfied with Hollande’s performance seven months after he took office, according to an Ifop poll of 1,023 adults published Jan. 8 by Paris Match. More than half of those surveyed by Ifop don’t believe Hollande can improve the employment situation this year, even as 59 percent cited job creation as their top priority.

“The government is under a lot of pressure politically and in the media,” Barroso said. “He has to find a way of addressing the concerns of French people without being unfriendly to business.”

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