Global Economics

Job Security Ignites Debate in France


Demonstrations against a new French employment law are reaching a boiling point. More than one million people marched through French streets on Mar. 18 and 19. Half the country's universities are blockaded, one injured protester lies in a coma, and workers' unions are threatening a general strike on Mar. 28. The nation's press has started comparing the unrest to the iconic student protests of May, 1968.

At issue: a new law pushed through in the wee hours of Feb. 9 by the government of Prime Minister Dominique de Villepin that aims to reduce youth unemployment by making it easier for companies to lay off workers under the age of 26 during their first two years on the job.

While that sounds counter-intuitive, French business leaders have long complained that the country's strict worker protections discourage them from hiring more. Villepin, seeking to reduce the nation's double-digit youth unemployment, proposed an approach that he thought would lower the risk of taking on young workers.

DANGEROUS TERRITORY. The results have been explosive. Labor protection is the "third rail" of French politics, and previous attempts at reform have even brought down governments. To address the crisis, Villepin held talks in his Matignon office on Mar. 20 with business leaders and student representatives. The two dozen CEOs and other executives who met the prime minister discussed possible amendments that could defuse opposition and prevent the law from being withdrawn entirely.

Why are business people so bent on the change? "The fundamental issue is France's capacity to create employment," says Amaury Eloy, the founder of a local copy center chain and member of the pro-entrepreneurialism group Growth Plus. "Hiring has become a bureaucratic decision, instead of one based on need or opportunity," he says.

Consider the case of mobile phone retail chain The Phone House, a unit of British giant Carphone Warehouse. The company's CEO, Geoffroy Roux de Bézieux, was one of the leaders who met with Villepin on Mar. 20. He already employs 2,500 people, nearly half of whom are under 26. "Put simply, we will hire more people if this contract survives the protests," Roux de Bézieux says.

HIGH COST OF FIRING. In April, Roux de Bézieux is aiming to launch a subsidiary with a staff of several hundred new people. But if the new law, called the CPE or Contrat Première Embauche (First Employment Contract) is withdrawn, he says, he'll be forced to hedge his bets and hire 20% to 30% fewer people than he needs at the beginning. That way, he will avoid paying out should the business take longer than expected to reach targets. "The CPE would allow us to take more of a risk up front," he explains.

Indeed, that was the law's rationale. When France's poor city suburbs erupted in violence last November, the government vowed to tackle inequalities in the job market that make it extremely difficult for young people to find work. One of the first such issues was the reluctance of French employers to add employees because of the high cost of firing them.

At the moment, a business could have to pay a worker up to a year's salary in severance pay for two years of work. The result is that businesses hire and fire much less than in other European countries, so workers stay in jobs longer, creating fewer openings for young people.

With the CPE, a company can hire someone under 26 and then let him go at any time during the first two years without providing a reason. Severance payments are capped at 8% of the annual salary. Even though the law is supposed to help young people, they were the first to lash out. Though the scope of the CPE is limited, students and a growing share of the French public see it as a critical first step in weakening treasured job protections.

"WON'T AFFECT DECISIONS." The government says any job -- even one that can end suddenly -- is better than no job at all. But CPE opponents believe the right to job security is a moral issue and that workers must be protected from abuse at the hands of employers. "Perhaps [the CPE] would create more job liquidity, but at what cost to our family life and stability?" asked Lionel Bosca, a teacher in the Paris suburbs, at a demonstration on Mar. 18.

Ironically, some business leaders aren't happy with the CPE, either. Some think it won't make any difference. Others think it doesn't go far enough. François Boncilhon, the CEO of Paris-based Linux software company Mandriva, is one of the skeptics. "The French have a strange belief that by making layoffs harder or hiring easier, it will change employment practices," he says. In the real world, "companies hire people when they need them and fire them when they have to fire them." The CPE, Boncilhon insists, won't affect his own decisions.

Copy-center entrepreneur Eloy finds a different fault with the CPE. "It doesn't deal with the underlying reality, the most basic problem," he says. France's economy, he argues, is dragged down by deeply complex employment laws, which include 21 different types of job contracts and a government-written Employment Code Book that contains a staggering 2,500 pages and weighs 22 pounds. "The government needs a wide-reaching reform to create a single employment contract instead of pushing for small, incremental improvements such as the CPE," he says.

LOOKING FOR A HERO. One solution suggested by some politicians and observers would be to copy the Danish model. There, workers can be hired and fired as easily as in Britain or the U.S., but can claim unemployment benefits at 90% of their previous salary.

Whatever the outcome of the CPE, France's youth desperately needs role models to inspire them, argues Roux de Bézieux. "The American and British press are full of stories about daring entrepreneurs like Richard Branson, but we have nothing like that," he says. "There is a perceived generation gap between the old employers who act like hungry wolves and the hungry, disaffected youth. We need hero stories to inspire them."

For now, the CPE will have to suffice. After meeting with Villepin on Mar. 20, Roux de Bézieux described the prime minister as "determined to hold firm" in the face of protests. But opinion polls show 68% of the French population opposed to the CPE. The message to Villepin from France's workers is clear: You may lose your job over this reform, but we'll be damned if we're going to lose ours.


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