Wednesday, June 15, 2016

French with Benefits

French workers love their generous labor laws, where it is virtually impossible to fire redundant employees. With universal healthcare courtesy of the government, generous retirement benefits, the French also enjoy some of the leanest work hours and fattest vacation time on earth. “The 35-hour limit was introduced in 2000 and has come to be seen as sacrosanct by many on the French left. It is the lowest in Europe, shorter than the 40-hour limit in many countries including Spain, and far fewer than the 48-hour limit in the UK...
“France also mandates 11 consecutive hours of rest between each working day and one consecutive 35-hour period of rest per week, usually a weekend… And the French have a generous holiday allotment - an average 30 days a year of paid leave, compared with 28 in the UK, 25 in Norway and Denmark, and 20 in Germany.”, May 26th.
It’s not that French workers are unproductive. Their productivity is competitive with the rest of Europe. But their unemployment rate – driven by a fear of employers to bring on workers that they cannot fire in a downturn – is exceptionally high, pitting those with jobs against those wanting work. “[Why] is unemployment in France at 10.5%, compared with 5.4% in the UK and 4.8% in Germany? One reason the French are so often on strike comes down to the issue of ‘insiders versus outsiders,’ says Professor Iain Begg, a researcher from the London School of Economics (LSE)… ‘Those in jobs who already have various forms of labour protection are keen to preserve them, obviously,’ he says.”
What the raw unemployment number for France does not reveal is the component underlying that rate that explains the “why” much better. Among those under 25 in the labor market (having or seeking jobs), that unemployment rate is a staggering 24%. And the resistance of employers to create the necessary opening is truly based on their unwillingness to bring on workers where the economic world is anything but stable and certain. Companies simply want the flexibility to lay-off workers when the economy contracts, something American companies simply take for granted but not-so-easy to French employers.
Recognizing that something has to give to manager that unacceptably high level of unemployment, a new set of laws has been proposed to give companies an incentive to hire, bills that have drawn the ire of those already with jobs represented by some of the most powerful unions anywhere. The BBC (May 31st) summarizes the proposals:
French labour reform bill - main points
·         The 35-hour week remains in place, but as an average. Firms can negotiate with local trade unions on more or fewer hours from week to week, up to a maximum of 46 hours.
·         Firms are given greater freedom to reduce pay.
·         The law eases conditions for laying off workers, which is strongly regulated in France. It is hoped companies will take on more people if they know they can shed jobs in case of a downturn.
·         Employers to get more leeway to negotiate holidays and special leave, such as maternity or for getting married. These are currently also heavily regulated.
Socialist President Francois Hollande has embraced the proposals, notwithstanding the rather extreme reactions from the most powerful segments of his constituency, and has simply dug in his heels over the protests. Strikes, threatened and actual, have slammed into those running nuclear power plants, the Paris Metro, national railroads, Air France, oil refineries, newspapers, etc., etc. The showdown lumbers towards a vote.
“The labour reform, which is aimed at making the labour market more flexible, was pushed through the lower house of parliament without a vote… A new national day of action is planned by unions for 14 June, when the bill goes to the Senate… Labour Minister Myriam El Khomri said on [May 31st] she was waiting to hear from the CGT, the union leading the action, after hearing that its leader, Philippe Martinez, had called for new talks.
“A local CGT leader, Olivier Mateu, called on President Hollande to reconsider the reforms on [May 31st]… ‘Maybe the government counted on the fact that with the arrival of spring and hot weather the whole country would be asleep?’ he said in an interview for the Associated Press news agency… ‘There is no shame in political leaders going back on their decision when they have made a mistake, to create the conditions to discuss social progress in this country,’ the trade unionist added.” The unemployed do not remotely have the organization or political clout to counter these powerful unions.
Street protests in Paris have grown violent nevertheless. “French leaders told the hardline CGT labour union on Wednesday it would be denied permission for further street rallies unless it rooted out troublemakers, a day after violent battles between masked youths and police during protest marches in Paris.
“Prime Minister Manual Valls accused the CGT of doing little to rein in hundreds of rioters who ransacked shopfronts, tore up street paving and smashed the windows of a children's hospital during running battles on Tuesday. The police responded with teargas and water cannon and dozens were hurt on both sides.” Reuters, June 15th. Analysts suggest that France’s demands to continue these rather powerful union/government limitations on work hours generate the same level of unexplainable passion as in the United States over our Second Amendment.
In the United States, where unions represent only 6.7% of the private sector and labor laws are vastly more favorable to employers, most Americans simply don’t understand what the big deal is all about. Are the French simply spoiled brats, unaware of global competitive challenges? Look around your house. What French products do you see? Wine? Black truffles? Expensive designer clothes and accessories? OK… none of these. How about French electronics, computers or cars?
Yeah, we don’t import French cars anymore, and who makes computers in France anyway? Sure they are very advanced in medical research, related technologies and pharmaceuticals and pioneered much of what we have come to accept as modern telephony and state-of-the-art railroads, but I think you get my point. The Chinese are simply amused at these issues as their manufacturing machine rolls onward with incredibly lower labor costs.
The Western march towards social benefits, with France at the fore, may have slammed into the wall of rising and highly productive developing economies, primarily from Asia. Should we pull back on the same trends in the United States or has that already happened? Our issues revolve around the heavy recent acceleration of narrowly-focused wealth in a newfound level of income inequality at the expense of everyone else. But as the neo-populist movement in America illustrates, a whole lot of Americans have the same passions against Wall Street and the government betrayal in letting such income inequality happen in the first place. Both France and the United States have to come to grips with the anomalies they have created. How they deal with these issues may well define their survivability as economic and political systems.
I’m Peter Dekom, and as global conflicts escalate from the outside, instability in the most powerful economies in the West create a massive destabilizing force from the inside.

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