FRANCE: SEEKING MORE LABOR FLEXIBILITY

UNCLAS SECTION 01 OF 02 PARIS 005694

SIPDIS

SENSITIVE

STATE FOR EUR/ERA, EUR/WE, DRL/IL AND INR/EUC AND EB
COMMERCE FOR NAAS
DEPT OF LABOR FOR ILAB
DEPARTMENT OF COMMERCE FOR ITA

STATE PASS USTR

E.O. 12958: N/A
TAGS: ECON ETRD PGOV PREL ELAB PINR FR EUN
SUBJECT: FRANCE: SEEKING MORE LABOR FLEXIBILITY


NOT FOR INTERNET DISTRIBUTION

Summary
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1. (SBU) PM de Villepin has announced an emergency
employment plan, which will introduce more flexibility into
the rigid French labor market. The plan creates a new type
of hiring contract that will allow companies of up to 20
employees to lay off workers anytime during the first two
years of employment. The employers need not justify the
dismissal but must still provide some compensation. Unions
have protested but appear to be waiting to see if other
issues, such as lower purchasing power resulting from the
surge in oil prices, will provide a basket of issues to
rally around. End Summary.

Introducing Flexibility in the French Labor Market
-------------- --------------

2. (SBU) Bypassing Parliament, PM de Villepin rushed
through this employment reform designed to spur job creation
by cutting the cost and red tape associated with layoffs in
France. Implemented by government decree under an emergency
procedure on 4 August -- while most of France was on
vacation, rather than on the originally scheduled date of 1
September -- the new type of contract is called the "New
Recruit Contract". It is intended to allow small companies
of up to 20 employees to more easily hire and fire new
recruits during the first two years. The new contract will
provide for financial compensation for the employee if the
contract is terminated before the end of end of the two-year
period. The employer is also required to give the new hire
"sufficient notice" of a pending layoff decision.

The Broader Emergency Employment Plan
--------------

3. (SBU) This employment incentive comes on top of a
broader measure that would abolish by 2007 all French
employers' Social Security contributions on wages equivalent
to the French SMIC (or minimum wage, currently a 8.03 Euros
per hour gross). It is part of a comprehensive "emergency
employment plan" presented by de Villepin in early June.
The plan calls for a 4.5 billion state-financed effort to
facilitate the return to work of the unemployed, the young
and the over-50 population. Other resources "already
committed to employment policy" will finance some employers'
exemptions from Social Security contributions. At the same
time, to remedy a generally acknowledged misuse of the
unemployment benefit system, the new emergency employment
package introduces sanctions for repeatedly refusing offers
of reasonable employment, a first in France.

Trade Union Discontent
--------------

4. (SBU) Unsurprisingly, French trade unions immediately
issued a call for action in September (after the vacation
period) to protest against the increase in "low-wage traps"
that they claim will result from the "New Recruit
Contracts." Union representatives believe that the surge in
oil prices and the resulting "drop in purchasing power" has
handed them a combination of issues which may rally the
French populace against the Government's reform program.


5. (SBU) Trade unions have announced that they may also
delay action until October to give themselves time to
present a united front. Some unions said they will test
their call for action in French regions first, before
calling for nation-wide action. In the meantime, the
business community has responded positively to the new
measures. The new head of the French employers' federation
MEDEF, Anne Parisot has described the new hiring contracts
as "a first chance for France to set in motion, from its
smaller firms, the growth movement that we need."


6. (SBU) COMMENT: The trade unions had hoped that their
call for united public and private sector "mobilization"
against the new contracts would gather momentum as people
returned to work in September. However, by introducing the
scheme in the doldrums of August, the GOF has managed to
slow down any momentum that protests might have had. At this
point, the unions believe they need to cast their net more
broadly to try and tap into perceived consumer discontent
about higher oil prices, and the resulting drop in
purchasing power. They may find there is little appetite
for a fight. End Comment.

HOFMANN