It is hard to find a silver lining in the clouds that hover over France’s economic future. Months of sustained political protest by French students forced a humiliating defeat on the Paris government, obliging it to withdraw a package of labor reforms that would have made it easier to fire first-time workers. The results highlight the increasing gap between the demands of French citizens and the realities of 21st-century economy. It also made plain the inability of the French leadership to rise to the occasion — and lead — when the country needed it most.
French Prime Minister Dominique de Villepin introduced the First Employment Contract, known by its French initials “CPE,” in an attempt to introduce flexibility into French labor markets and bring down the stubbornly high unemployment rate among the country’s youth. The national unemployment rate in France is 9.6 percent; for workers under the age of 25 the rate is near 25 percent, while in some areas, populated mostly by immigrants, it can get as high as 50 percent. The CPE would allow employers to hire workers under the age of 26 for a two-year probationary period, during which time they could be terminated without explanation. After the probation, the employee would get the standard labor contract.
The legislation was greeted by mass protests by French students. Millions took to the streets to demonstrate against a measure that they claimed discriminated against them by denying them the protections afforded other workers. They were joined by national labor unions, which called general strikes in support of the students. This proved too much for the Paris government. After the CPE was passed into law in early April, President Jacques Chirac asked businesses not to apply it. Escalating protests forced Mr. Chirac and Mr. de Villepin to backtrack completely. They used their parliamentary majority to quickly purge the law from the statutes and replace it with vocational training for young workers and financial incentives for employers to hire them, even though similar programs already exist.
Complete retreat may not be enough to end the protests. A similar reform, the new job contract (known as the CNE), was passed last summer. It allows companies with less than 20 employees to dismiss workers without giving a reason during a two-year trial period. Some students and unions have argued that it, too, should be repealed, calling it “the elder brother of the CPE.”
The easy answer to that demand is that companies have hired 400,000 on the new contract, and more than one-third of those are new jobs. By virtually all forms of logic, that is a compelling argument.
Sadly, logic does not seem to be the guiding principle in this dispute. Instead, politics — as always — is the predominant concern. The unions and the left opposition joined the students because they sensed an opportunity to successfully challenge a government that has out-maneuvered them for several years. At the same time, Mr. de Villepin’s main rival within the center right government, Interior Minister Nicolas Sarkozy, has been battling the prime minister as the heir to Mr. Chirac, and their competition has hampered the government’s ability to respond to the unfolding situation. By most accounts, the entire debacle has hurt Mr. de Villepin badly — his approval ratings, along with those of the president, have plummeted. Mr. Sarkozy, perceived as being more sympathetic to the students, has high ratings. (A word of caution here: When immigrants rioted months ago over perceived injustices, Mr. Sarkozy was blamed for insensitive remarks. Popular opinion is fickle.)
Changing France’s labor market is always a hazardous exercise. Reform has been attempted in 1993, 1995, and again in 2003, but each time public protests forced the government to back down. This latest attempt will only deter politicians from trying again. No politician is going to revisit the issue for some time.
But the need for reform is plain. Unemployment in France continues to hover around 10 percent, defying all attempts — including an artificially shortened work week — to bring it down. The minimum wage continues to rise, even though it is already one of the highest in the world. The new economy demands increasing flexibility and mobility among workers and companies to adjust to rapidly changing economic conditions. Yet the French cling to an outdated outlook, expecting guarantees that will insulate them from economic reality. The only guarantee today is that demands on labor will change and employees and employers alike must be prepared to adapt to them. Governments can help workers develop the skills that allow them to deal with new conditions, but they cannot guarantee a job today for five years, much less 40.
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