French Labor Protests

French Labor protest being organized at École Militaire near our apartment

French Labor protest being organized at École Militaire near our apartment

In our neighborhood of Paris, we’ve already seen two large, well organized French labor protests. There are now violent protests throughout France against proposed changes to the labor laws. The government is trying to improve the economy – why is there such strong opposition?

Economic Problems

France has a number of economic problems. The rate of economic growth (% change in gross domestic product (GDP) – a measure of how the economy is doing overall), has been very slow, 1.2% or less for 4 years. Unemployment has been at about 10% for 4 years, worse than unemployment has been in the US since the Great Depression. Youth unemployment has been about 25%, and about 80% of those youth who have jobs are working under temporary employment contracts, where the employer is under no obligation to keep them after a certain date. Government spending is 56% of GDP, 2nd highest in the EU, compared to about 45% in Germany and 40% in the US. The budget deficit has been more than 3.5% of GDP for the last 4 years. The public debt is more than 95% of GDP. The original rules for EU membership required countries to keep public debt less than 60% and deficits less than 3%, or pay fines. Since then there have been numerous accommodations, but the French are under pressure from the EU to reduce their deficits to below 3%.

At first the Socialist government of President François Hollande tried to raise tax rates to increase tax revenues from the rich, which was expected to lower the deficit. However, at the same time they lowered the retirement age back to 60 years and cancelled previously approved reductions in employment, thus restoring 60,000 jobs recently cut from public education. These measures added back government spending that had been previously reduced. After the government missed their goals for deficit reduction and after continued weak economic growth, France promised the European Union in 2014 that they would reevaluate their budget to find reductions of 50 billion euros over the next 3 years. Therefore the government of France must increase tax revenues by growing their economy or increasing taxes, or they must reduce spending to limit the deficit.

To deal with this, François Hollande shuffled his cabinet and named Manuel Valls his Prime Minister. Valls made other changes, including naming an economist, Emmanuel Macron, as his Minister of the Economy.

France is ranked 141 out of 144 countries on “hiring and firing practices” according to the World Economic Forum’s Global Competitiveness Report. Companies face high taxes to hire each new employee, and when they want to lay off employees for economic reasons, the decision on compensation goes before a judge who may award the employee pay for an unlimited period of time. Therefore it is an onerous task for a company to hire a new employee.

French labor protest

Another view of the labor protest forming up to march

Regulations also permit unions to negotiate agreements with employer federations who represent sectors of industry. Thus a union representing only a fraction of all employees can negotiate an agreement that applies to all the employees and employers in a given sector. For instance, labor unions for technology and consultancy employers negotiated an agreement to limit work time through cell phone communications during the leisure time of all employees in these industries, these communications being considered to be an unwarranted extension of work time. This agreement affected some 250,000 workers. Each day some 80,000 French commute to better paying jobs in Luxembourg. This is the largest cross border workforce in the EU.

Government Proposed Reforms

To reduce the burdens of current regulations, the French government has proposed that companies be able to negotiate with unions on working conditions and salaries, where current law ties their hands. They propose that management be able to sign deals only with organizations where at least 50% of the workers participated in union elections, up from the current 30%. This would bring such negotiations closer to the individual company level. The government wants more flexibility for employers in setting employee working hours, allowing increases above the 35 hour limit under certain conditions with certain restrictions. The government also wants to make the rules for layoffs for economic reasons more flexible. They also want to limit the total possible cost to an employer for an employee layoff. The government contends that these changes would bring France into line with the rules in other European countries.

The measure has divided France’s ruling Socialist Party. After the government was unable to reach a compromise to ensure passage of the bill, it invoked a special measure of the French Constitution, article 49.3, to allow passage in the lower house (Assemblée Nationale). The bill must still pass in the French Senat.

French Labor Protests

Police barricades

Police barricade the streets along all routes to the protest

Trade unions have declared that all these changes are unacceptable, and have been organizing widespread protests, some of which have been violent, trying to force the government to give up the cause. Dozens of police as well as participants have been injured in protests involving hundreds of thousands of workers. Fuel shortages have been created by fuel blockades and a transport strike. 16 of 19 nuclear power plants have voted to go on strike, which could potentially create power outages. Unions have further plans for rolling strikes on the Paris Metro system starting June 10th to potentially disrupt the Euro 2016 soccer matches that are to take place throughout the country over the course of the following month.

Labor protest marchers arriving

Marchers arriving to participate in the protest

Polls show that a majority of the public is opposed to these reforms. It’s obvious why unions would be opposed, but why French youth are vigorously opposing these reforms is not obvious, since it appears that youth employment opportunities would be improved. Some critics say that the government’s bill doesn’t address the changes that are needed for the 21st Century. No doubt this is true, but it’s not obvious that these changes would be embraced any more than the current proposals.

While the government is standing firm and international organizations such as the International Monetary Fund have been calling on France to enact these types of reforms, it’s anybody’s guess how this struggle will turn out.

More about the French Economy

Some of the throngs of shoppers along the Champs-Elysées

Some of the throngs of shoppers along the Champs-Elysées

Although we have not reported much about the French economy, I do follow it. In the second quarter the French economy grew .5% after being in recession 3 of the 4 previous quarters. This was cause for rejoicing. In contrast the much maligned US economy grew 2.5% last quarter and has had 9 straight quarters of positive growth (and 15 out of 16 positive). France continues to miss the EU mandated public deficit goal of 3 %. 2013 will probably end up at about 4%. In contrast, the US has no such mandate and had a public deficit of 8.5% in 2012. Unemployment in France (March 2013) was 11%, a level not reached in the US during many of our lifetimes (though in the Great Depression US unemployment was 25%).

Trade union membership in France includes only 8% of employees, one of the weakest in Europe. There’s probably something I don’t understand about this – US membership in 2010 was 12.3%. What is curious is that with such a small percentage actually in the French unions, they have no problem mobilizing large numbers of people in support of protests and definitely are a force in making government policy.

Some other interesting facts about the French economy:

1. France has the 2nd largest economy in Europe and is 5th largest in the world by nominal GDP and the 9th largest by PPP (purchasing power parity – where cost of living and exchange rates are factored in).
2. France is the wealthiest European country.
3. France leads the world in the use of nuclear energy with about 78% of its energy coming from nuclear power.
4. France is the world’s 6th largest agricultural producer and 2nd largest (after the US) agricultural exporter. Nearly half its exports go to EU member states.
5. France is the world’s most popular tourist destination with over 81 million visitors annually, ahead of Spain (58.5 million) and the US (51.1 million) – so no other country is even close to France in tourism.

This week I saw an article that gives some broad perspectives about how business is done in France. We have personally encountered small business owners who abhor the intrusive government controls on business – one we met said his dream was to relocate to the US. The story is about the impact of the government forcing stores to close at an earlier hour as a result of union complaints, but the article does a good job of discussing the supporting and opposing viewpoints. It also points out other aspects of doing business here that would be very foreign in America. It’s apparent that the French have more tolerance for government control than we have in America. Government expenditures are about 56% of the economy, highest in the EU. By comparison our government expenditures in US are about 40% of our economy (GDP).

Here is a link to the article – I’ll post several quotes from it below:

http://ca.news.yahoo.com/unemployment-high-france-forces-stores-close-early-163751855.html

France has a raft of regulations governing shopping, and its labor unions ensure that they are strictly enforced. As well as strict limits on opening and closing hours, the rules only allow sales during certain periods of the year, price promotions are circumscribed, loss leaders are illegal, store sizes are limited and even the types of shops allowed to open up are regulated.

This week a Paris court of appeal ordered the cosmetics chain Sephora to close its flagship store on the avenue at 9 p.m., rather than staying open until midnight during the week and until 1 a.m. on Fridays and Saturdays.

The cosmetics chain reckons it does about 20 percent of its business after 9 p.m., and the 50 sales staff who work the late shift do so voluntarily — and are paid an hourly rate that is 25 percent higher than the day shift. Many of them are students or part-time workers, and they have publicly expressed their indignation about being put out of work by labor unions. The judge refused to take into consideration a petition they presented to the court, saying the case was a matter of public order, so now they are taking their campaign online, including with a Facebook page.

Two big department stores near the Paris Opera, Galeries Lafayette and Printemps, both very popular with tourists, have calculated that they could increase their revenues by at least $200 million per year and employ an additional 1,000 full-time staff if they were allowed to open more often on Sunday.

Retailing regulation is the most visible, but many other consumer-oriented businesses are also subject to rigidly-enforced rules. Taxis, hairdressers, public notaries and many others are governed by “obsolete regulation,” according to an official 2008 report on ways to open up the French economy, written by Jacques Attali, a writer, consultant and former top government official, who argued that it was time to blow up the rules and liberate producers and consumers alike in order to create jobs and give a boost to the economy. Among other things, he recommended eliminating a 1973 rule that limits the numbers of bars with alcohol licenses; enabling hairdressers with five years experience to open a salon without having to pass a special exam; dumping a quota system that limits the number of pharmacies, and breaking a taxi monopoly in Paris that restricts the number of cabs in the French capital and can make it hard to find one at peak hours or when it’s raining.

So far, President François Hollande and his socialist government have shown no signs of wanting to change the status quo. To do so would mean taking on the labor unions, a core constituency. But when jobs and growth are so obviously at stake, letting people buy lipstick at midnight seems a small price to pay.

Despite all these negative sounding circumstances, we don’t see them – life here seems fine. Like some of what we don’t see in the US, there is beneath the tranquility and high quality of life some signs that the ship of state can’t keep this up much longer. The government’s next step to make things better is about as clear as our own government’s plans to reduce the long term deficit. We’ll see. On verra.