January 17, 2012 / 6:41 PM / 6 years ago

Sarkozy makes pre-poll dash for French labor reform

PARIS (Reuters) - French President Nicolas Sarkozy sits down with union leaders this week in a last-minute attempt to overhaul labor rules before an election, promising quick fixes for unemployment but little progress on the deeper issue of job flexibility.

France's President Nicolas Sarkozy (2nd L) and Agriculture, Food, Fisheries and Land Management Minister Bruno Le Maire (L) visit a school canteen which serves meals using local products in Pamiers, southwestern France, January 17, 2012. REUTERS/Lionel Bonaventure/Pool

As the euro debt crisis topples France from its prized AAA credit ranking and pushes the economy to the brink of recession, Sarkozy is trumpeting his “crisis social summit” on Wednesday as a chance to tackle a chronically high unemployment rate.

Pressure on him intensified on Friday when ratings agency Standard & Poor’s singled out “labor market rigidities” in a text explaining its downgrade of France by one notch to AA+.

Yet as unions push back, refusing to be rushed into reforms to help his bid for re-election in April, hopes are fading for a frank discussion on areas economists see as ripe for reform, from restrictive labor laws to the 35-hour work week and the role unions play in pay negotiations.

Instead, with opinion polls showing him losing his battle to retain the presidency, Sarkozy is racing for two deals he can announce by the end of January: making it easier for companies to cut working hours in a downturn; and shifting a portion of social fees from salaries to a consumption tax.

Critics say the summit fits with a legacy of hurrying into reforms and watering them down to avoid conflict with unions.

“This is the classic scenario where he rushes into a deal at the last minute without taking enough time for consultation or following through,” said economy professor Pierre Cahuc at France’s elite Polytechnique school.

“I’m extremely pessimistic about the chances of either the unions or the government pushing the job market in the direction of a real reform,” he added.

KURZARBEIT IN FRANCE?

Even before preparatory talks this month, unions said they would oppose efforts to push through structural reform so close to an election, held in two rounds on April 22 and May 6.

Talks have since focused on widening access to partial unemployment, which the government hopes will allow France to replicate Germany’s success with a longstanding program of shortened working hours known as “Kurzarbeit.”

Yet some economists raise eyebrows at the comparison. Under Germany’s system workers get 60 to 67 percent of their salary from unemployment insurance for up to 24 months. In 2009, the program cost Germany 6 billion euros ($7.6 billion).

France is in a budget-tightening cycle that leaves little money for job training schemes, a key feature of kurzarbeit. Partial unemployment is limited to six weeks and involves a prohibitively lengthy and complex government approval process.

If France simplifies the process it could stave off further rises in jobless claims, already at a 12-year high. But economists say the move falls short of their calls for greater labor flexibility.

“It seems to me that this helps to to ease the effects of an economic downturn on employment, but the impact on long-term unemployment is likely to be small,” said Herve Boulhol, an economist and head of the France desk at the Organisation for Economic Co-operation and Development.

A deeper reform would reexamine the gulf between long-term (CDI) work contracts, which are costly to break and offer workers too much security, and short-term (CDD) contracts, which offer them too little, Boulhol added.

Another proposal, to reduce labor costs by shifting some employer-paid fees onto sales taxes, has run into opposition, notably from the powerful CFDT union.

“Any structural measure is not on the agenda for us. The CFDT wants emergency measures based on existing means,” CFDT national secretary Laurent Berger told Reuters.

With hourly labor costs in Germany nearly 4 euros lower than in France - and an independent report last week showing French workers worked an average of 224 hours less than their German counterparts in 2010 - the initiative on sales tax could help.

But economists say it may also crimp consumer spending in an economy heavily dependent on domestic demand. And unions disagree with it in principle. Lowering labor costs was “not a priority,” CFDT head Francois Chereque told reporters last week.

HARDLY “FLEXICURITY”

When Sarkozy came to power in 2007, he promised a reform that would draw on Denmark’s “flexicurity” model, credited with an unemployment rate last measured in November at 4.2 percent.

Five years on, economists say that French labor costs remain too high, firms struggle to adjust their wage bill, work contracts are too restrictive, and unions still represent only a tiny portion of private sector workers.

Previous efforts at reform fell short, as with a 2008 measure that allowed firms to break with workers on amiable terms, rather than the more onerous firing for economic reasons.

“It was a step in the right direction, but the problem is that there is an incentive for workers and employers to strike a deal at the expense of unemployment insurance,” Bouhlol said.

Cahuc points to a 2009 reform on union representation as another example of Sarkozy’s failures. France still has one of the lowest union membership rates in the European Union.

“What would allow the labor market to become unblocked is a reform of the way trade unions work,” said Pierre Cahuc. “We’re a long way away from that.” ($1 = 0.7851 euros)

Editing by Ruth Pitchford

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