Bloomberg News

Noyer Warns Hollande of France’s ‘Serious’ Economic Weakness

July 10, 2012

Bank of France Governor Christian Noyer told President Francois Hollande that he should act to address France’s “serious” economic weakness by shaking up the labor market and restraining wage costs.

“France has allowed serious weaknesses to develop over the past few decades, which account for the slow deterioration in its economic position in Europe and the world,” Noyer said in an annual letter to the French president. “Having paid insufficient attention to developments in its competitiveness, France has let its capacity to produce and export slowly slide, resulting in rising unemployment.”

Noyer’s remarks are aimed at spurring talks between unions and businesses today in Paris that are intended to shape economic policy over the next five years. Corporate leaders including former European Aeronautic Defence & Space Co. Chief Executive Officer Louis Gallois have called on Hollande to create a competitiveness “shock” by slashing labor costs.

With growth stalling, joblessness at a 12-year high and neighboring Italy and Spain already in recession, Hollande’s challenge is to convince unions to accept curbs both to wage costs and labor rules that will make it easier for businesses to compete with their counterparts abroad.

France has the euro area’s second-highest unit cost of labor after Belgium, according to an April Eurostat report. The French figure of 34.20 euros ($42) an hour compares with Germany’s 30.10 euros, Italy’s 26.80 euros and 20.60 euros for Spain.

35-Hour Week

Unit labor costs in France have increased by about 20 percent relative to Germany since 2000 as French companies implemented the nation’s 35-hour work-week law imposed by Socialist Prime Minister Lionel Jospin, according to economic think-tank Coe-Rexecode, a Paris-based research firm.

“Of all advanced countries, France has registered, since 2000, the sharpest decline in its market share in global exports,” Noyer said today. “The deterioration can partly be ascribed to the unfavorable developments in the cost of labor in France compared to our main competitor on world markets, Germany,” he said.

Yet wage costs alone aren’t France’s only handicap, executives and economists say. Companies say one of the biggest obstacles to hiring is the “Code du Travail,” a 3,200-page labor rulebook that decrees everything from job classifications to leave for training to the ability to fire.

“The cost factor does not explain everything,” Noyer said. “The drop in the number of hours worked and rigidities in working time arrangements have probably played a role” and reviving exports means tackling all sorts of restrictions that hamper activity, he said.

To contact the reporter on this story: Mark Deen in Paris at markdeen@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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