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New law aims to boost French competitiveness

, July 16, 2015, 0 Comments

French-competitiveness-MarketExpress-inLori Thicke still remembers the first time she fired an employee. The tipping point came after the young woman took yet another holiday without asking her boss.

“When I challenged her, she told me, ‘why should I ask you, when you don’t ask me about your holidays?'” recalls Thicke, who owns a translation company located just off the capital’s iconic Place de La Bastille.

Then came the hard part. The formal letter laying out the reasons for the layoff. Months of negotiations. A final meeting with the staffer who was accompanied by a union representative. And then the expensive settlement package.

“I had to pay that person five months’ of salary to fire her,” Thicke says ruefully. “And it’s made me nervous to hire again, because French labor laws are so strict. Which doesn’t really help France’s unemployment rate.”

Stifling law

Today Thicke, a Canadian who has been working in Paris for nearly three decades, is taking few chances. And she’s not the only one. The country’s stifling labor code makes it difficult for bosses to hire and fire workers and to grow their companies without steep costs.

Now, newly passed legislation promises to ease some of those restrictions. Known as the “loi Macron” after the country’s young Economy Minister Emmanuel Macron, the law – which does not enter into force until August – tackles a hodgepodge of sectors. The overall goal; to make France a friendlier place to do business.

“The country needs reform, the country needs to move forward,” said French Prime Minister Manuel Valls, whose government has vowedmore reforms in the coming months.

Among other measures, the legislation will extend the number of Sundays and evening hours that shops can open, deregulate France’s inter-city bus industry and make it easier to become a notary public, advertise alcohol and get a driver’s license.

It would also reduce penalties for bosses like Thicke to lay off workers, under certain conditions. In June, the Socialist government also introduced measures making it easier for small- and medium-sized companies to hire employees, in a larger bid to reduce the country’s 10-percent-plus unemployment rate.

Thicke does not yet know the details of the legislation, and what it would mean for her 13-member company. Among other things, it sets caps on how much payout labor tribunals can award laid-off workers. But she is guardedly optimistic.

“It’s actually hard to hire someone, and its even harder to fire them,” she says. “Just to loosen up the paperwork would actually help employers focus on growing their companies and performing better, rather than dealing with a lot of really restrictive laws.”

Minimal impact

France’s employer union, MEDEF, has also welcomed the legislation, calling it “a real step in the right direction.” A number of economists agree it’s a good start.

Still, analysts like Tomasz Michalski, assistant economics professor at the HEC business school in Paris, suggest the overall impact of the measures will be minimal.

“The intention is to basically increase competition in the French economy, modernize it, and also deliver some pro-investment stimulus,” Michalski says. “But this is at a very micro level. Very small sectors are going to be affected.”

Areas like bus deregulation and Sunday shop openings may indeed create jobs, he said, but not in the big numbers that France needs. The government is taking baby steps, he argues, when it needs to make a giant leap.

“What is lacking is a grand bargain, in which you would reform the whole structure of the French economy,” Michalski says. “There should be lower government spending, tax reform, labor market reform and cuts on subsidies. The government is making small reforms, they’re not rethinking the system.”

Despite the official rhetoric, Michalski also does not see much appetite by the Socialist government of President Francois Hollande to enact more ambitious measures ahead of the 2017 presidential elections. Even the reforms proposed in the current legislation have been sharply criticized by both the Left and Right. Twice this year, the government has been forced to use a special constitutional tool to ram it through parliament.

Open door for abuses

Following the bill’s final passage last week, the main conservative The Republicans party appealed to the Constitutional Council, France’s highest judicial authority. Members say it does not go far enough. On the other side of the spectrum, the far-left Front de Gauche party argues it threatens workers’ rights.

“It’s an open door for all kinds of abuses,” Florian Borg, president of the Lawyers Union told Le Monde newspaper, suggesting the bill would allow bosses to fire employees for fabricated reasons.

Thicke disagrees. “I think French labor laws are created with the idea that employers are just waiting to fire people,” she said. “Nothing could be further from the truth.”

She draws comparisons with her native Canada, where unemployment is just 6.8 percent – nearly four percentage points less than in France. “There’s so much more dynamism in the labor market,” she said. “It’s easier to fire workers, but it’s also so much easier to get a job – and there are so many more jobs available.”