Europe

Macron's Labor Reform Isn't Enough to Lift Economy

His winning streak continues, but his long-term challenges remain.

Still marching.

Photographer: Christophe Morin

The media narrative has been clear for weeks: An increasingly unpopular French President Emmanuel Macron is facing major protests in the fall for trying to shake up his country's labor laws. But the real story, as it became clear on Thursday, is that Macron is plenty strong and emerging as the victor in this particular battle.

Macron appeared to spend the summer showing off to foreign leaders and squabbling with powerful domestic figures, including respected generals, over budget cuts that didn't seem particularly pressing but which antagonized the military and part of the bureaucracy. That cost him in the polls, with some of them showing his popularity below 40 percent and lower than his predecessors at this time in their terms. But, as a poll released Thursday by Le Figaro Magazine made clear, Macron's base is holding strong even as center-right Republicans and center-left Socialists melt away.

That dynamic was perhaps inevitable: Traditional centrists mainly voted for Macron to defuse threats from the far right and the far left, and the president, strengthened by an absolute parliamentary majority handed to him for the same reasons, doesn't need their active support until the next election. In April, he only won 24 percent of the vote in the first round of the presidential election.

It wasn't a wasted summer, either. Macron's ministers held dozens of meetings with union leaders and representatives of employers' organizations to hammer out the details of Thursday's labor reform decrees. The resulting text is enthusiastically backed by employers large and small, and two of France's five major labor unions, including the strongest one in the private sector -- CFDT -- have immediately indicated that they won't take part in leftist protest actions planned for September. The most radical union, CGT, once dominated by the Communist Party, and failed presidential candidate Jean-Luc Melenchon's hard-left organization, France Unbowed, will still hold their demonstrations, but their effect is likely to be underwhelming because of the lack of broad union support.

The two groups have made some dramatic statements about the proposed changes. France Unbowed called it a "confirmed aggression against the labor code" and CGT Secretary General Philippe Martinez spoke of "the end of the labor contract." But there's nothing that ominous in the 159 pages of changes to the 3,000-page labor code, presented on Thursday by the government.

They lower the minimum severance payment when a worker is fired without proper cause from six months' salary to three months for workers who have held a job for two years. The cap increases with seniority, up to 20 months' salary for those who spend 30 years at a firm. The new rules make it easier for multinationals to fire French workers by allowing them to cite the global economic situation rather than just local difficulties. To compensate for this, they make layoffs slightly more expensive.

French unions, which count fewer than 8 percent of the nation's employees as card-carrying members, aren't such a formidable force because of their numerical strength but because of their statutory powers. Macron's overhaul chips away at those. It merges several workers' representative bodies decreed by the labor code for big and medium-sized enterprises into one. At small firms, it allows employers to negotiate work terms directly with the employees, cutting out the unions. Besides, firm-wide deals will take precedence over nationally negotiated agreements if a majority of a company's workers back them. 

Previous attempts to reform the labor code always got watered down to the point of being useless. But it won't happen this time: Macron has the power to push the changes through by decree and the parliamentary opposition is too weak to resist him. Anyway, the essence of the French system remains: worker protection and high employee bargaining power. It doesn't make employment in France as precarious as in the U.S., the U.K. or Eastern European countries, and it doesn't completely do away with union power. 

It's a major political victory for Macron, even if polls in September show him losing a few more popularity points thanks to the fiery rhetoric from the left and sour criticism from the right. 1

But that's less of a problem for Macron than the potentially underwhelming economic effect of his proposals. His detractors on both the right and the left predict that labor reforms won't put a dent in unemployment, and they may be right. Now, Macron is helped by an economic tailwind driving the entire euro zone. But the measures he has proposed may not be potent enough to counteract the effect of the euro's inevitable strengthening on France's competitiveness. If unemployment refuses to budge from its current level, which has oscillated between 9 and 10.6 percent since 2009, Macron's victory will be hollow and further compromise with the unions won't be possible. 

That what he seems to fear when he says France is "not a reformable country." His proposed solution is more European unification and, thus, more convergence with neighboring countries. If that, and not a quick and visible result of his labor reforms, is his biggest bet, everything he's doing today, from the budget cuts to the labor code proposals, are primarily overtures to German Chancellor Angela Merkel, the only European leader who can help Macron bring Europe closer together. 

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

  1. Nicolas Dupont-Aignan, the right-wing former presidential candidate who eventually backed the National Front's Marine Le Pen, condemned the government proposals for not doing enough to discourage the hiring of cheap "posted workers" from Eastern Europe or to boost industrial employment.

To contact the author of this story:
Leonid Bershidsky at lbershidsky@bloomberg.net

To contact the editor responsible for this story:
Mike Nizza at mnizza3@bloomberg.net

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