Matt Browne is an expert in international political economy and a senior fellow at the Center for American Progress.
ROME — In September, French President Emmanuel Macron’s government launched its controversial reform of the French labor market, having won support in the French Parliament to pass these reforms by decree. With these reforms, Macron seeks to boost the competitiveness of the French economy and address unemployment, which has hovered persistently at just around 10 percent for years — almost twice the level of many other major European economies. Many believe that France’s existing labor market code — some 3,000 pages long — has restrained business in the country.
During his election campaign, Macron vowed to cut unemployment to 7 percent by 2022. As president, he proposes tackling unemployment by simplifying corporate governance and easing social dialogue, particularly in small and medium-sized enterprises, where it will also be easier to hire and fire employees. Like former German Chancellor Gerhard Schröder, whose Agenda 2010 and Hartz reforms were criticized by opponents on the left and right, Macron’s reforms have raised concerns among trade unions and the investment community alike.
With this, in Germany and now in France, we are witnessing the transition from the solidarity and security of the mass industrial age to the fragmentation and insecurity of the new economy, shaped by globalization and what in Europe is still an incipient digital revolution. As Macron and Schröder recognize, large welfare states must be able to compete in the global economy to pay for themselves. “If Europe today accounts for just over 7 percent of the world’s population, produces around 25 percent of global GDP and has to finance 50 percent of global social spending,” German Chancellor Angela Merkel once famously warned, “then it’s obvious that it will have to work very hard to maintain its prosperity and way of life.”
The only way forward, as the smaller Nordic countries have already learned, is what they call “flexicurity” — combining flexibility in a constantly shifting economy, both for companies and young people looking for work, with an extended safety net that catches those who fall in the cracks of the steady disruptions of the new economy. Rather than seeing all these imperfect reforms as merely a destructive dismantling of labor codes and a welfare state founded in bygone economic conditions, they should be seen instead as pioneering moves that seek to maintain social values in an ever-more complex future.
At the heart of Macron’s reform agenda is an attempt to learn from some of the key successes of the Swedish and German models and to unleash the energy of France’s small and medium-sized enterprises, which currently employ roughly 50 percent of France’s population. Labor negotiations for these firms continue to take place at the sector level. The new legislation puts greater focus on negotiating agreements within firms. French Labor Minister Muriel Pénicaud has announced that any deal supported by the majority of a company’s workforce on working hours and wages would overrule an agreement or policy in the wider industry.
While this will give the firms greater flexibility to adapt to market pressures, Laurent Berger, head of the French Democratic Confederation of Labor, has raised his members’ concern about the reduction of the union’s influence. Employee representation within larger firms — those with more than 50 employees — is also being reformed, folding the nomination of workers’ representatives, the establishment of a workers’ council, and a health and safety committee into one structure.
A further notable reform deals with the relevance of a company’s global profitability when it comes to restructuring. The relative health of foreign-owned enterprises that lay off staff or close factories has been a controversial issue in France, such as with ArcelorMittal in 2013 or Whirlpool in 2017. French law had required that any large-scale layoffs be approved by the Chamber of Commerce, and a judge could block plans or fine firms if the companies’ global operations were profitable and the layoffs deemed unjust. In the future, however, judges will only be able to take into consideration a company’s performance in France.
Short-term contracts are also being reformed. Until now, they were restricted to being renewed only twice. If the reforms are agreed, duration and renewal terms — how often and for how long a contract can be renewed — will be set at the sector level. This will discourage companies from using loopholes — like re-hiring a short-term worker after a hiatus — that take advantage of employees and let companies avoid the cost of offering more secure, long-term contracts. Interestingly, the government is not planning to reform the code for permanent contracts, which have strong protections.
Many commentators see the controversial nature of these reforms as a key factor driving down Macron’s popularity. A recent poll in France showed that nine out of 10 citizens believe the country’s labor code is in need of reform, but 60 percent also expressed concerns about Macron’s plan.
Here, experiences in Germany are instructive. While the median employed household gained from the Hartz reforms, the cuts in benefits significantly impacted the long-term unemployed. Similarly, low-skilled workers with precarious jobs often found their situation becoming more acute, and studies suggest that reforms reduced real wages for this group. Indeed, the duality that the Hartz reforms introduced to the labor market is likely one of the reasons why the reforms remain unpopular, despite the obvious success they had in reducing unemployment and improving the competitiveness of the German economy.
France and Germany are the testing ground of whether the “flexicurity” that has worked so well in the Nordic countries can be scaled up to larger states and indeed Europe as a whole. Stay tuned.