Macron Faces a Moment of Truth on French Labor Laws


The Meteoric Rise of France's New President 

Are France’s strict labor regulations responsible for the country’s persistently high unemployment rate? Emmanuel Macron said so during his election campaign (and again last week) and set to work on liberalizing French labor law almost as soon as he was sworn in as president in mid-May. On Thursday, his government will present the changes it plans to implement by executive order next month. The last three presidents also tried to loosen labor regulations and had to partially backtrack in the face of opposition. Will Macron succeed where others failed? The powerful CGT union has called for protests on Sept. 12, and Macron’s former rival for the presidency, Jean-Luc Melenchon, will rally against the measures on Sept. 23.

1. Is French law really to blame for high unemployment?

France’s unemployment rate is 9.5 percent -- about double the rates in Germany, the Netherlands, the U.S. and the U.K., though lower than in Spain or Italy. France’s labor code runs to 3,000 pages and covers everything from wage negotiations to standards for ventilating offices. Pierre Gattaz, the head of France’s main business lobby, has spoken of 1 million jobs being created if France reduces payroll taxes to make its companies more competitive and cuts job protections that Gattaz say make companies afraid to hire. “France’s problem is that it has had mass unemployment for 30 years,” Macron said Aug. 23. “The reality is that we are the only big European country that hasn’t won the battle against unemployment.”

2. Does everybody agree on that?

No. French unions say making it easier to fire people won’t create jobs, and that unemployment results from the tight budget policies forced by EU-imposed austerity. (The austerity argument resonates more in Greece and Portugal, and maybe Italy, than in France, probably the euro-zone country that’s imposed the least-austere measures.) Many economists take a middle view. “The level of employment protection in France is one of the strictest across European countries, therefore even minor reforms could improve the competitiveness of French companies,” Goldman Sachs wrote in a note to clients July 4. But it warned that “the impact of labor market reforms on the economy has proven to be challenging to identify in the past.”

3. What is Macron’s plan?

In talks with union and business leaders, Macron and his labor minister, Muriel Penicaud, focused on three main areas: giving individual companies more say on contractual issues such as working hours and pay; merging the myriad workers’ councils that proliferate as companies grow (they’re why France has so many 49-employee companies); and putting limits on court-imposed severance pay, a process widely viewed as so unpredictable that it discourages companies from hiring people in the first place. As always, the devil is in the details, which will be what unions and business groups will study when Macron’s plan is released. One area that’s not being discussed directly is France’s 35-hour work week, though devolving negotiations to the company level may result in more working time.

4. How does Macron plan to get this done?

He has avoided taking the usual route, which is sending a formal proposal to parliament, where debate and amendments might well water it down. Instead, Macron and Penicaud -- a former head of human resources at Danone -- met repeatedly with unions and business leaders over the past three months to establish what they might and won’t accept. On June 28, Macron’s cabinet asked parliament to give his government the power to change the country’s labor law by executive order -- a power that was granted a few weeks later.

5. How far did previous presidents get?

Macron’s three immediate predecessors all viewed France’s labor laws as too restrictive. In 2003 and 2005, Jacques Chirac managed to loosen the 35-hour cap on the working week, making it easier and cheaper for companies to add extra hours. In 2008, Nicolas Sarkozy cut taxes on overtime work and made it simpler for individual workers to negotiate their own departures. And Francois Hollande’s reforms of 2013 and 2016 made it easier to justify layoffs due to a downturn in business. But attempts by Chirac and Hollande to go further -- Chirac hoped to create a new type of ultra-flexible contract that would apply to young people; Hollande proposed limits on severance pay -- were blocked by public protests. Plus, Sarkozy’s five-year term was spent in the shadow of the 2008 global financial crisis, which made it that much harder to propose letting companies fire people more easily.

6. Won’t Macron face similar opposition ?

Maybe, and maybe not. For one thing, he ran openly on a platform of liberalizing the French economy, which was not the case for Chirac and Hollande. Plus, France’s unions are divided. The CGT, which grew out of the Communist Party and is France’s second largest union, has called for a general strike Sept. 12 to protest Macron’s plans. But France’s largest union, the CFDT, and the third largest, Force Ouvriere, said they will wait to see the decrees in September before deciding what steps to take. The CFDT has taken a more conciliatory position in recent years, and has gained votes in recent worker representative elections.

7. What do polls show?

They’re all over the place, partly because the details aren’t yet well-understood. Some polls say the French favor shaking up the labor code, while others say they are opposed to specific measures Macron has proposed. A survey published by Odoxa on Monday showed that 63 percent of the French don’t trust the president on issue, though 56 percent believe that labor rules need to be reformed.

8. Would labor reform be Macron’s signature initiative?

For him, labor laws are just the appetizer. Next up is a reformulation of France’s entire system of unemployment insurance and job training to bring it closer to those in many northern European countries. Then he wants to merge France’s disparate pension systems, which he counts at 37. The ultimate goal is to win Germany’s trust. Reforming the labor market “is crucial for the credibility of Macron abroad -- and particularly with Germany -- to be able to push through his ambitious agenda of a deeper European integration,” Olivier Vigna, an economist at HSBC France, said in a note to clients.

The Reference Shelf

    Before it's here, it's on the Bloomberg Terminal.