The inequity at the heart of France’s labour market

Hollande has failed to make the case for reform to a sceptical public

François Hollande has managed to unite French society against what might have been the flagship reform of his presidency. Measures to inject much-needed flexibility into a dysfunctional labour market have enraged unions, divided the socialist party and alienated the young people who should have been their biggest beneficiaries.
Now the watered down legislation is under attack from France’s central bank governor.
François Villeroy de Galhau argues that businesses will not invest if they cannot trust the government to act on its intentions — and counsels Mr Hollande to learn from the reformist zeal of Italy’s Matteo Renzi.
It is a bruising setback for Mr Hollande, who has repeatedly said he will run for re-election in 2017 only if he has made significant progress in cutting France’s double-digit unemployment.
This is still hampered by the high cost of labour, the confrontational nature of labour relations and the inequity of a two-tier system in which employees with permanent contracts enjoy too much protection. Meanwhile young people spend years hopping between precarious temporary positions. The lesson Mr Hollande should draw from the debacle, however, is to be bolder rather than more cautious in framing his ambitions for a second term.
Despite the disastrous political miscalculation, the measures that will now be put to French lawmakers represent a substantive step forward, even after their dilution to exclude smaller companies. Large employers should be more willing to hire if they are given greater flexibility to negotiate with unions over working hours and are able to cut jobs at lossmaking plants in a downturn.

These are far-reaching reforms that go further than any French president has yet ventured. And there have been other achievements, including cuts of about €40bn in corporate taxes. Yet Mr Hollande’s approach — like that of his predecessors — remains one of incremental reform.

Although the latest proposals were radical enough to bring students out on the street in protest, even unamended they fell short of what is needed to tackle the “economic emergency” declared by Mr Hollande at the start of the year.

The main problem is that the president, elected on a manifesto that played to traditional socialist values, has failed to make the case for reform to a sceptical public. Instead, he spent his first year in office delivering crowd-pleasing promises made on the campaign trail. Now, voters on the left feel betrayed; those on the right doubt his motives; and he is heavily constrained by the need to unite the leftwing of his party in order to combat the populist appeal of the National Front. More-over, a backdrop of sluggish growth is not conducive to structural reforms that rarely pay off in the short term.

In Italy, Mr Renzi has been able to take more decisive action because he came to power with a clear commitment to reform — and because the Italian economy was far closer to crisis. In France, economic growth has been disappointing, but stable; public debt manageable; and productivity comparable with that of most major economies. Many people do not see the urgency of more disruptive changes.

Nonetheless, the current system is failing young people, whose future Mr Hollande pledged to improve at the outset of his presidency. If he wants to win their support for a second term, he should address the inequity at the heart of France’s labour market, changing the terms of employment for all and not perpetuating the divide between insiders and new entrants. He must make the case now, if he is to win a mandate to be bolder next time round.

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