French labour deal is small boon for jobs

Mon Jan 14, 2013 1:56pm EST

* Deal is a victory for Hollande's 'talk-first' approach

* Will help to limit rise of unemployment in 2013-14

* CEOs, economists say further reform needed

By Nicholas Vinocur

PARIS, Jan 14 (Reuters) - French unions and employers have risen to President Francois Hollande's call for a "historic" deal overhauling labour rules but it will take more than this to defeat rising unemployment.

The first to gain from Friday's accord, announced after three months of tense talks, was Hollande and his "dialogue first" approach to reform, wagering that long-time adversaries could agree far-reaching changes to the labour code.

The Socialist president will present to parliament in March a draft law sanctioned by most labour groups, pre-empting the resistance that floored previous, centre-right governments when they tried to reform without union backing.

But economic results - a pick-up in growth or job creation - may not match the political breakthrough. National statistics office INSEE projected in December that jobless claims would hit a 15-year high at mid-year.

"Such compromise is rare in France and merits praise," Societe Generale economist Michel Martinez wrote in a research note. "But this does little to change the long-term outlook, as further reform is required."

Economists say the deal should boost France's credibility with investors and credit ratings agencies. Standard & Poor's has repeatedly cited "labour market rigidity" in its negative outlook on France's AA+ debt rating.

"The idea that things are moving in France through social dialogue is an extremely powerful signal on the international level," Louis Gallois, ex-CEO of EADS and author of a report now shaping the government's competitiveness drive, told Reuters.

The deal should allow firms in difficulty to put some workers on shorter hours temporarily, with new rights to dismiss those who refuse to participate. Recourse to such "partial unemployment" arrangements will be simplified and expanded, following Germany's "kurzarbeit" job-preservation model.

"When I saw the final draft I said: hats off, this is a courageous deal," said Pierre Vauterin, chief executive of CBA aeronautics, a subsidiary of the U.S. group Triumph. "This goes in the right direction for companies, which will feel more freedom in making their hiring decisions."

If companies must dismiss workers, the deal absolves them of the need to prioritise in order of seniority and experience. It also cuts the time limit for disputing unfair dismissals to 24 months from five years previously.

Such changes may ease worries about hiring. "Some of these small firms have a visibility of one, two months for orders," Vauterin said. "This will help them breathe."

BACK TO WORK

But Vauterin, who manages 60 people and was part of a committee of small business leaders advising negotiators for the employers, was circumspect about the overall impact.

"We're not going to pull 500,000 jobs out of a hat," he said, adding his peers had pushed for tougher changes to the 3,200-page labour code on issues such as absenteeism, measured at 14.5 days per worker by Alma Consulting Group.

Efforts to get people into work include 20 billion euros ($27 billion) in annual tax credits for companies and state subsidies to create 150,000 youth jobs this year and next. Some 650,000 senior employees are seen retiring in 2013.

"Will this be enough? No. But it's going to limit the rise in unemployment," said Eric Heyer, economist at the OFCE economic think tank, which is close to the Socialist Party. The OFCE expects unemployment to rise this year, he added.

Unions and employer groups will start a new round of talks on the jobless benefit system, which they operate jointly, by year-end. The goal is to bring the UNEDIC fund's deficit, seen growing to 5 billion euros in 2012, under control.

But the changes employers want on this may be harder to achieve. Unlike the labour deal, which had deep consequences but could be difficult for average workers to decipher, changes to the benefit system are easily understood.

"For once, we have a deal that subtracts, rather than adds, pages to our labour code," said Vauterin. "We should be happy with that. But much remains to be done."

A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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