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.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 ProtestsTrade 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. 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.