It was expected to be the mother of all French political battles. But the first stage of President Emmanuel Macron’s reform of the country’s sclerotic labour market was completed not with a bang but a whimper. The million protesters who far left-leader Jean-Luc Mélenchon promised to deploy on the Champs-Élysées never materialised. Almost weekly demonstrations organised by the communist trade union CGT flopped.
Macron’s advisers say he succeeded where his predecessors failed by stating clearly what he would do before his election, strengthening his position through landslide victories in legislative and presidential polls, then sticking to his position.
“We tackled the hardest, symbolic part, the labour code and the taxation of capital, first,” says an adviser at the Élysée. “The same actors had been playing out the same drama for decades. We got the theatrical part over.”
Macron lowered the tax on dividends to a flat rate of 30 per cent, and exempted capital investment from the wealth tax, in the hope of stimulating the economy. He paid a high political price for those decisions, which reinforced his image as the “president of the rich”.
We tried to regulate every detail of every business. It paralysed companies
The state of the French economy helps explain why labour reforms went through relatively painlessly. “It’s not as if we went from an ideal world where everything was great,” says another adviser. “On the contrary. It wasn’t good for business because our economic performance has been poor for 15 years, and it wasn’t good for employees because we have a very high jobless rate. Even those with jobs are not happy with their conditions.”
Unemployment
French unemployment stands at 9.5 per cent, close to 25 per cent among young people. It has been higher than the European average for a quarter century. The COE-Rexecode institute predicts Macron’s reforms and lower capital tax will create up to 300,000 news jobs and raise growth by half a percentage point over his five-year term.
The labour code reform allows management to reach agreement with employees within a company, regarding working hours, remuneration and other conditions, rather than negotiate with trade unions across an entire economic sector.
Some 96 per cent of French businesses have fewer than 50 employees. Under Macron’s reforms, the director of a small or medium sized enterprise can propose an agreement to his employees, who can accept it by a two-thirds majority.
“Since the 1970s, the more difficult work relations became, the more we legislated,” says a Macron adviser. “We tried to regulate every detail of every business. It paralysed companies.”
To avoid the complexities of hiring and firing, employers resorted almost exclusively to short-term contracts that provide zero job security. “Our system froze the benefits for a small core of employees, and subjected the rest to precariousness,” the adviser explains.
Macron’s reforms seek to reverse the prevalence of temporary positions, by imposing high social charges on short-term contracts and offering lower charges for permanent jobs.
Unfair dismissal
Under the old system, employees could obtain huge settlements for unfair dismissal. Damages have been capped at 20 months' of salary for those with the longest seniority. At the same time, Macron raised indemnities for those who lose jobs by 25 per cent, because France was below the European average.
“There is nothing worse for business than uncertainty,” an adviser explains. “France had a reputation for having things written down, but it didn’t happen that way, and things dragged on a long time.”
Macron also raised business confidence by changing the labour code and tax regime at the very beginning of his term, and promising not to touch them again during his five years in office.
The lowest paid workers will receive an 'activity bonus' equivalent to a 13th month of salary
A law that banned foreign investors who make profits outside France from firing French employees has been rescinded.
Macron’s advisers say his reforms will not reproduce the phenomenon of poor-paying, part-time “McJobs”, so prevalent in Germany, the US and UK. “We haven’t touched the minimum wage. We’re training people and making it easier to fill permanent positions.”
‘Activity bonus’
The lowest paid workers will receive an “activity bonus” equivalent to a 13th month of salary. And Macron has promised to spend €15 billion to provide employees with the skills they need to find new jobs in a more flexible market.
Macron was inspired by Nordic countries, not the “Anglo-Saxon” model. “We’ve maintained the prinicple of protecting everyone against the risks of poverty, old age, illness and unemployment,” says an adviser. “But the status of labour must not be an obstacle to a competitive economy. We have kept our model, but adapted it to the 21st century.”
Macron has now started negotiating the second phase of the reforms, on training, apprenticeship and unemployment insurance. Benefits will be extended to those who resign, and to independent workers such as Uber drivers. A draft law will be presented in the spring, with the goal of enactment by next summer.
