Article / 14 September 2017 at 9:00 GMT

Can Emmanuel Macron win the 'mother of all battles'? — #SaxoStrats

Head of Macro Analysis / Saxo Bank
France
  • Macron reforms welcome, but they don't go far enough
  • Proposals do not address precarious employment
  • Automation, robotics the key future labour issues

France
May Day protests: The French populace have always guarded their labour market protections, 
but this has come at a high cost. Photo: Shutterstock

By Christopher Dembik

This is the second time in less than a year that France has moved to reform its labour market. As far as we can see, the current round of measures are as tepid as usual.

The minimum wage, the five weeks' paid leave, and weekly working times remain unchanged. Furthermore, the government expects to: 

  • Favour collective bargaining within companies (as is the case in Denmark, for instance) and allow referendums to be set up within companies. Concretely, for instance, this means that bonuses and technical unemployment in case of a deterioration in economic conditions can be decided by referendum. 
  • Limit the compensation granted by labour courts in case of unfair dismissal (but derogations may subsist in case of violation of “fundamental freedoms”). 
  • Simplify economic redundancies. 

Basically, the idea is to reduce uncertainty for employers. Polls underline that they are reluctant to hire due to prohibitive costs linked to employee dismissal. From my viewpoint, however, the proposed reforms do not go far enough. It is aberrant that in France one can contest a dismissal claim for up to two years after it has happened (one year if the reform is implemented) whereas in other European countries, the time limit is a few weeks or months. This creates significant legal uncertainty for small and medium-sized companies.

There are many contradictory studies on the effects of labour market flexibility. So far, there is no evidence that this reform will be sufficient to significantly bring down the unemployment rate. It is even likely that it will have the opposite effect in the short term, leading to higher unemployment in a context of widespread overstaffing.

We can expect that employers will act rationally and decide, at first, to take advantage of the reforms to make redundancies more easily and at lower cost in order to increase competitiveness and revenue.

In the long run, it is undeniable that the reform sends a strong positive signal to foreign investors, entrepreneurs, and the European Commission. Drawing conclusions from foreign experiments (as in Germany or Italy), similar labour reforms led to full (or lower) unemployment. However, the negative side of the coin is that they also led to an explosion of precarious work. 

There is no case of a major country that managed to reach full employment with only well-paid permanent contracts.

What the French government is not saying is that labor market flexibility is primarily an expression of the popular will. It reflects the belief that work is better than idleness, even if it is poorly paid, and that it contributes to social integration. 

Actually, this is quite a recent belief that is linked to the emergence of the bourgeois society. ..

In order to limit precariousness, the government should unveil a reform to strengthen vocational training to specifically target less-skilled workers. Taking a close look at the unemployment data, it appears that there is no mass unemployment in France, there is only high long-term unemployment for lower-skilled workers. 

For educated workers, unemployment is quite low, around 5%. It is crucial to act on two levels: basic skills (as shown by France’s poor rank in the PISA study) and competencies designed to face tomorrow’s labour market (robotics and AI).

PISA Source: OECD

Overall, the proposed reforms are on the right track, but if Macron wants to restrict unemployment in a lasting sense (and go down in history as the man who managed to change France) he will need to seriously address the issues of technology and demographics. 

These are crucial since they will completely reshape society and the attitude towards work. So far, however, he has been quiet about this.

Robotics
To be fair, it's a complex subject. Photo: Shutterstock


— Edited by Michael McKenna

Christopher Dembik is head of macro analysis at Saxo Bank
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