Manpower Inc. (MAN:US)’s Alain Roumilhac says France’s new labor accord is a much-needed boon for the employment company in its largest market.
Although far from revolutionary, the Jan. 11 pact between unions and business groups would, in addition to making firings easier and labor rules more flexible, allow temp companies for the first time to hire people on permanent contracts to be farmed out to clients.
For Milwaukee-based Manpower and its peers Randstad Holding NV (RAND), Adecco SA (ADEN), Group Crit and Synergie SA (SDG) -- all of which count France as their biggest revenue generator -- the move would open the door on some margin-rich business, Roumilhac, chairman of Manpower’s French unit, said in an interview this month.
“If we get staff on permanent contracts, they’ll be our employees, so we’ll be able to invest much more on training them, and we hope to be able to monetize that and have better margins,” he said. “It will allow us to move up-market and provide clients skills they’re struggling to find. Our clients will pay more for them.”
In Germany, Sweden, the Netherlands and Italy, which let temp companies hire permanent workers, the net margin before tax for Manpower, Adecco and Randstad averages 6 percent of sales, about double that in France, he said.
The labor accord is an effort by President Francois Hollande to address concerns of business leaders that rigid French labor rules risk worsening the country’s economic climate. Companies ranging from carmaker PSA Peugeot Citroen and Air France-KLM to drugmaker Sanofi are cutting thousands of jobs, driving unemployment to a 13-year high.
The agreement may also help narrow the mismatch of skills and available jobs that has left more than 10 percent of France’s work-age population without employment. While jobless claims rose to 3.13 million in November, the nation’s employment body’s latest figures show about 36 percent of French companies planning to hire struggling to find the skills they need.
“There are a lot of jobs for which we are struggling to find enough competent people,” said Roumilhac. Manpower, whose French unit accounts for about 27 percent of its $21 billion sales, plans to seek skills including software engineering and accounting for its permanent contracts.
The company and its rivals are being helped by the fact that the labor pact seeks to encourage employers to offer more permanent contracts. French employers -- faced with an inflexible “Code du Travail,” a 3,200-page labor rulebook that decrees everything from job classifications to the ability to fire -- have increasingly used short-term contracts.
Of the 21 million work contracts signed each year, only 3 million are permanent and offer employees powerful legal and financial tools when faced with the loss of their jobs.
Fourteen million of the contracts are for less than a month, according to Louis Gallois, former head of Airbus SAS parent European Aeronautic Defence and Space Co. (EAD), who was asked by Hollande to write a report on French competitiveness.
Randstad says the labor accord would allow it to optimize its annual training budget of 40 million euros to tailor the skills of employees to jobs in high demand, such as plumbers, welders, masons, research engineers and hospital nurses.
The possibility of permanent jobs may also lure stronger candidates such as young professionals and retirees, Francois Beharel, chairman of the Diemen, Netherlands-based company’s French unit, said in e-mailed responses to questions.
In Germany, Italy, the Netherlands and Sweden, permanent contracts account for 5 percent to 10 percent of employees placed out by staffing companies, said Manpower’s Roumilhac. They tend to be skilled people who are easy to employ.
To be sure, not all companies are sanguine about the accord. Call-center operators such as Teleperformance SA (RCF) are bracing for higher short-term contract taxes.
“The possible surcharge on short-term contracts would be a real clobbering for our industry,” according to SP2C, the business federation of call-center operators, which counts Teleperformance among its members.
Although about 84 percent of the call-center industry’s 60,000 employees were on permanent contracts in 2011, “the marginal use of short-term contracts addresses our specific need of flexibility.”
Employment companies will not be subject to the tax.
Manpower shares rose as much as 1.7 percent to 47.94 euros, the highest in almost 10 months. They were up 1.5 percent at 10:48 a.m. in New York trading.
Shares of Adecco, the biggest temporary jobs company, which gets 30 percent of its sales in France, fell 1.1 percent to 52.15 Swiss francs at 3:49 p.m. in Zurich today after reaching an 18-month high yesterday. Randstad fell from yesterday’s 18- month high, sliding 0.8 percent to 30.16 euros in Amsterdam.
The stocks of smaller French rival Group Crit were unchanged at 15.75 euros at 3:50 p.m. in Paris, and Synergie was up 0.2 percent at 8.59 euros.
The labor market accord, which would make firing procedures shorter and more predictable and allow companies to reduce working time and salaries when demand slows, has to be enacted by the French Parliament.
“The impact of the agreement will not be immediate, as it needs to be written into French law in the spring, but there is limited risk of it being amended,” Olivier Lebrun, an analyst at Natixis in Paris, wrote in a Jan. 14 note. “This amounts to another very positive development in the staffing sector in France.”
Hollande, who also pledged to introduce a tax credit for companies after saddling businesses and consumers with 20 billion euros in extra taxes in 2013 to cut the country’s deficit, has yet to improve on what he inherited from predecessor Nicolas Sarkozy: an economy that has barely grown in the past year and unemployment on track for a euro-era record.
Randstad’s Beharel cautioned that the impact of the agreement can only be assessed “in the long term” since the details of the permanent contract for employment-services companies have yet to be discussed with labor unions.
“At the end of the day, economic growth remains key for our sector and the labor market,” said Beharel.
France’s economy is estimated by the International Monetary Fund to grow by 0.3 percent this year, less than half the government’s target of 0.8 percent.
“For the moment, there’s no signs of improvement,” said Manpower’s Roumilhac. “I’m hoping for a rebound from September. The economy is about confidence, above all. The accord provides a backdrop that is more favorable for entrepreneurship.”
To contact the reporter on this story: Francois de Beaupuy in Paris at email@example.com
To contact the editor responsible for this story: Vidya Root at firstname.lastname@example.org; Simon Thiel at email@example.com