Employment Law

Employment Law in Europe

French Employment Law Riots

The riots by students and union members against the new French labor law can be understood better if the law is placed in the context of the French labor market for the past couple of decades. France has had low rates of employment, and unemployment rates of about 10 per cent for the past fifteen years. Some economists outside of France have blamed this to a significant degree on its rigid labor market.

I wrote an Op Ed piece in the early 1990’s for Le Monde, the prominent left wing French newspaper, arguing that regulations which made it costly to hire and discharge workers, and high taxes on labor, helped to explain both the low employment and high unemployment. French politicians, the middle and upper classes, and for a while most of their economists (one French economist replied in Le Monde to my article) rejected this explanation. They claimed that the proposed remedies were too Anglo-Saxon, and that the bad labor market situation was temporary, perhaps due to insufficient aggregate demand for labor. As sluggish employment continued throughout that decade and into the 21st century not only in France but also in Germany, Italy, and Spain, European economists and some politicians began to change their views. They concluded that lower taxes on labor, greater flexibility in hiring and firing, and other changes were necessary to produce the growth in employment that had occurred in both Great Britain and the United States. Germany under the Social Democratic leadership of Gerhard Shroeder significantly shortened the duration of unemployment compensation, and introduced other incentives for workers to look for jobs and for companies to hire them. In France, however, the resistance to change has been greater, and the Socialists while they were in power even went backwards by introduced a 35 hours workweek that was supposed to spread a limited number of jobs among more workers. Instead, it appears to have reduced employment. The Conservatives under President Jacques Chirac and Prime Minister Dominique de VIllepin have been slightly better.

They modified the 35-hours law, allowed a two-year probationary period for employees at firms with less than 20 employees, followed Spain by introducing short-term employment contracts, and made a few other changes. Unemployment of young persons in most countries tends to be about twice the overall unemployment rate, and so it is for France. Youth unemployment rate is about 22 per cent, and fewer than 30 per cent of French youth between ages 15-24 have jobs, which is half the rate in Great Britain. Unemployment rates of educated persons are generally much below those of the less educated, which explains why the low educated Muslim youth have unemployment rates well in excess of 30 per cent. In order to improve economic opportunities for young persons, the law that led to these riots extends the more generous employment rules for small firms to young workers. Under this new law (not yet in effect), workers under age 26 could be discharged within the first two years of their employment without employers having to give any cause. It might seem strange that these riots have been led by students and union members, groups that are well treated by the French system. University students are favored both because they pay only token tuition, and they have relatively good job prospects after they graduate. Nevertheless, among other acts, students occupied the Sorbonne for three days until they were forcibly evicted. Posner and I had indicated in our earlier discussion of the riots by young French Muslims that riots are not easy to predict by economic and social variables like unemployment, economic progress, or the degree of discrimination. Still, one line of analysis may explain the heavy participation of both university students and unionists in the current riots.

Employment by small companies and of young workers constitutes only a fraction of total employment. Therefore, to make a large dent on the economy’s performance, the greater flexibility given to small companies and for employment of young workers has to be followed by other laws that apply to all employees. These include much greater overall flexibility in hiring and firing, lower minimum wages, and reduced taxes on employment. Therefore, if this law is allowed to be implemented, it is likely to be followed by laws that reduce the employment advantages between the better educated and unionized “insiders” who have good pay and stable employment, and the less educated younger and immigrant workers who tend to be unemployed and have uncertain job tenure. This is why the conflict between employment insiders and employment outsiders can help explain why college students, who are future insiders, and unionists, who are current insiders, make up the bulk of those rioting. Since insiders make up a majority of all employees, it is not surprising that apparently most of the French people want the government to withdraw this law.

Although this explanation might be accepted for union involvement in these protests, does it help understand the participation of students since university students all over the world feel a responsibility to protest and sometimes riot? But consider that students have not taken over the Sorbonne since the famous 1968 student riots that brought down the de Gaulle government. I agree that students like an occasional riot, but usually a cause celebre is needed to galvanize them into action. The new youth labor law was the catalyst this time. That the riots may help university graduates and other insiders by discouraging politicians from taking away some of their advantages is surely an important added bonus.

Author: Becker, defunct

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17 thoughts on “Employment Law”

  1. Aarun

    The problem is individual citizens in France don’t grasp how the inefficiency of existing labor laws impacts them.

    I suggest French government commission an independent economic study of how many new jobs are estimated to be created by more flexible labor laws (and how much extra tax revenues would be generated). Based on those findings the government should send ‘pseudo hiring letters’ to unemployed young French workers (randomly selected and equal to workers who could have been hired). The letters should state that the person could have been hired if the existing rigid labor market rules had been changed.

    Similarly, each year ‘pseudo tax refund’ letters should be sent to taxpayers stating the amount of lower taxes the person would have paid if the existing rigid labor market rules had been changed.

  2. Dan

    Reminds me of the book, Bless the beasts and children. One teenager character fears that all the good protest issues will be gone by the time he starts college. He will miss out on the energy, camaraderie, and girls that go with heartfelt demonstrations. The desire for a cause to give his life a meaning.

    Labor markets in France need to be reformed, like political markets in Illinois need to be reformed, yet a majority in both markets cling to the belief that they have a vested interest that benefits them in the current system. In part, I suppose it is because neither group beliefs that the alternatives will improve their situation.

    Look at school vouchers, I am surprised how many parents belief that vouchers may help the talented escape a poor school system but that vouchers will do little for the average child ñ children like their own.

    Change is difficult, worse then anything but stagnation.

  3. Sam Vinson

    Perhaps some attention should be paid to the macroeconomic policies of Western Europe. Significantly lower taxes on the Reagan-Bush model would support less efficient employment practices. The Euro agreement makes that difficult because of the obsession with balanced budgets. It just might be that the lack of discipline in our fiscal system–or the democracy of it–raises income sufficiently that people do not rely on shortsighted decisions like guaranteed jobs to better themselves.

  4. Tracy

    I vaguely recall once reading an article in an economics journal that presented a model that argued that legally-set probation periods were bad for employment, as it created an incentive for employers to fire someone just before the probation period expired – even if that person was a good worker.

    From vague memory, it turned out that under a plausible range of assumptions, the risk of them not turning out to be a good worker once they’d gotten tenure and the benefits of maintaing flexibility outweighted the benefit of keeping a worker who had shown themselves to be a good worker.

    If this is the case, the Parisian students might indeed be being rational in a purely self-interested way. They are the most likely to get jobs, and they would lose from a loss in job security.

  5. Thibault

    The main problem in france is the lack of self-confidence, and the bad expectations everyone has because of the crap government, of the so so economic results…It freezes french economies, and french people are stuck thinking that what we had before was better, and therefore changes are mistakes…

    First, i had a question? how come you have data on the employment of muslims in france, when these etnical surveys are forbidden in France? Is it an estimation? Who gave you these features?

    Second, you ‘ve forgotten two elements : credit markets, and housing markets.

    And have you tried to look for some place to rent or any credits to help you start a family when you’re 24? It is true taht some part of the population is riotting because changes, and liberal changes are considered like evil, and that french are somehow quite lazy and coward. Some others are riotting because they know taht this new contract won’t help them to begin with life as “an adult” : and more precisely they will be excluded from the credit and housing markets (simple adverse-selection model when the principal is risk-averse).

    But they might not think about what is the french economic situation nowadays… When there is no money in the wallet, work and earn some more to be able to feed the family… (The US sometimes forget this mere fact…)

    Last question : Do you really believe that we can model and predict how french muslim students will be part of riots by economics ?

  6. Posner

    There is a considerable irony in the latest French riots, which are mainly by high school, college, and university students protesting a new law that allows employers to fire employees (without cause) during their first two years of employment, if the employee is under 26 years of age. The law, which has not yet gone into effect and will not if the government caves in to the rioters and their supporters (including public-employee unions, especially in transportation), is a response in part to a previous round of more serious riots, by French Muslims of mainly North African origin protesting their economic situation, which includes an astronomical unemployment rate particularly among the young.

  7. Joe

    “Employment at will” may work well on certain spreadsheet analyses of productivity, efficiency, etc. but these fail to take into account the cost of recruiting, relocating, training, and retaining employees in a dynamic hire/fire environment.

    I labored for 12 years in a stable position, with relatively low pay and little benefits, but it was satisfactory for my needs. Laid off from that job due to economic upheaval resulting from 9-11… I am now in the more typical “employment at will” market, where average turnover seems to run about 3 years. Salaries and benefits have to be higher to compete for the churning employees, while the employees themselves need the higher salaries and benefits as a hedge against unexpected layoffs.

    On a straight economic scale, this may look like win-win, until you consider the cost of relocating families across the country to take advantage of the market – then it starts to bring to mind the term “Koyanisquatzi” – a crazy, unsustainable way of life. Security isn’t available anywhere, so stability is sacrificed in the name of getting top dollar – tell me who is benefiting from this arranngement (besides the moving companies)?

  8. France may have an illustrious past and that may give it a benchmark level from which to fall,but it doesn’t adress the dynamism (or lack of) in current French society.To illustrate from classical/Newtonian mechanics a body in motion may have a higher velocity than an object which has a higher acceleration but has not been underway as long.Use France and India for these two examples.Your co-host can attest to this better than I,but my feeling is France is living off its capital;financial,moral and intellectual.

    Still ,this may be an opportunty for some.Rhett Butler remarked,”There’s money to be made in empire building and in empire wrecking.”

  9. Yong

    At-will employment is problematic because it protects the interests of the employer only and seems to completely ingore the interests of the employees. Most of us, and our parents, spend a lot of money, often borrowed money, on education which is required for most jobs today. When one is terminated from a job, some of that money is lost. Why should one be fired from a job and hence lose the money invested on education without being given a reason and an opportunity to challenge the reason? Plus, being fired from a job carries with it a terrible stigma. It seems to me that the French youth, who are in the process of making that very investment, have every reason to protest the new law. They chose to riot, but the riot came after peaceful protests that got no meaningful response from the French government.

  10. Sorin Cuceray

    But is this deregulation? For the sake of simplicity, I?ll divide the market into a business, or entrepreneurial, market (a market for business activities), and a labor market.

    Suppose both markets are heavily regulated ? as they are in France. A deregulation of the labor market would cause nothing but lower wages, since the business market remains heavily regulated, and therefore the number of buyers of labor is kept low.

    On the other hand, a deregulation of the business market would create a freer and more opportunistic business environment. This, in turn, would generate strong pressures to deregulate the labor market, a pressure generated both by businesses, and by labor.

    Simply put, you cannot have a deregulated business market and a regulated labor market ? but you can have a regulated business market and a deregulated labor market. The first scenario disfavors everybody; the second one disfavors only the labor, to the benefit of those businesses allowed by the Government to exist.

    The first conclusion of my argument is that student riots in France are ambiguous. We can?t tell whether the students are rent seekers whose rents are under threat (as both Becker and Posner suggest), or if they favor free market. Under the circumstances, both types of students may unite under the same banner against the Government.

    The second conclusion is that the French Government clearly began deregulation from the wrong end ? and this move is also politically ambiguous.

  11. Robert

    The riots are a symptom of a disease. Until France deregulates and lowers taxes, it’s overly statist economy will continue to suffer. The model for France–and other EU nations–is Ireland. The “Celtic Tiger” slashed both tax rates and regulation. The result was a demonstrable economic prosperity. France would be wise to take heed but would the famed Gallic hauteur allow such changes?

  12. Wess

    ..a new law that allows employers to fire employees (without cause) during their first two years of employment, if the employee is under 26 years of age.If this law really makes a distinction based on age then the government should apply a principle of independent multiple consent. In particular, any time a law treats people differently on the basis of something that they have no control over – race, ethnicity, place of birth, nationality of parents at time of birth or, in this case, age, then each group created by this distinction should have the power reject this distinction separately.For example, a law that specified ethnic profiling for airport security would be OK as long as the majority of people in both the targetted ethnic group and the non-targetted ethnic group approved the ethnic distinction separately. If, however, the majority in either ethnic group (targeted/non-targeted for extra screening) opposed the distinction then the law would have to treat both ethnic group equally.Applying this principle to the law mentioned by Posner, the law should only be able to make a distinction based on age if both the majority of people under 26 and the majority of people over 26 approve of this distinction separately.

  13. Joe Mack

    It’s one thing to make conditions on new workers – here we do it with long term, successful workers. In the USA when a company reorganizes under bankruptcy protection, the pension benefit obligation is restructured too. The contract between the stakeholders and labor is seen in a new light. The labor has been consumed. Part of the consideration – a stream of annuity payments in retirement – has a place in line with the other creditors, and can’t bargain for work that’s already been done.

    And as was reported in the NY Times – wages for some UAW workers have not only not been keeping pace with inflation, under a period of record productivity, they have been going down. No one said life is fair.

  14. Elton

    At-will employment is problematic because it protects the interests of the employer only and seems to completely ingore the interests of the employees.

    I think that it is currently possible in France for employees to quit their jobs in order to accept a better position. Yet it is difficult-to-impossible for a company to fire someone just to replace them with a better employee. The laws are already stacked very far in the favor of the employees; the only thing wrong with the new regulation is that it is so narrow in scope.

    Furthermore, anyone who has ever searched for a job knows that experience is gold. Even if the new French labor law would lead to young people being employed for 23 months and then being sacked right before the deadline, that is 23 months of experience that they might have not otherwise had, which will make them more employable in the future.

    The French obviously still expect an entitlement to lifelong employment at the same company, but that’s patently absurd in the modern economy. Probably 99% of the protesting students make use of the Internet, but have never given a second thought to the massive employment restructing required to efficiently produce the computers, routers, applications and web content that they are current enjoying. The foolishness is mind-boggling.

  15. Didier

    Most of your remarks regarding the latest French Riots are correct. You express your surprise that a law rejected by a majority of the French in the polls is not rescinded by the Assemblée Nationale. One of the problems we are facing is that the constitution of the Fifth Republic has weakened the legislative branch. The law on “Egalité des Chances” in which the new labor contract is included has been passed with the article 49-3 of the Constitution. In this case, at the request of the government, a law is automatically accepted unless the government is censured by the opposition. This procedure expedites the process, but shortens dramatically the debate at the Assemblée. Contrary to the US, where Representatives and Senators express independent views and vote, each French party is very disciplined in its vote and it is rare to see a dissident. The way the system works explains that demonstrations and strikes are considered as a normal way to operate to oppose a project, even if in my opinion this is the wrong way.
    The report about the demonstration can also give the impression that the students are in majority for the strike. This is certainly not the case even if a majority opposes the new law. Most of the meeting where the strikes are voted, called AG (for Assemblée Générale), are organized in a soviet way under violent pressure and with most of the students not attending. Extreme left groups (Trotskist) and the communist union take this opportunity to create trouble. A lot of students have protested to have their right to work protected, however the French police and the University presidents (who are the only one who can call the police in case of an incident at the University) don’t protect this right to work.
    Without any doubt the French labor laws as well as the tax laws explain why France to date doesn‚Äôt create jobs, but the reason why we have these laws is that the culture of the country is viscerally against the Anglo Saxon world and the free market system. When asked if the free enterprise system and free market economy are the best system on which to base the future of the world, only 36% of the French say yes which is the lowest number among the 20 countries participating to this poll (71% for the US, 65% for Germany, 63% for Spain, 59% for Italy and 74% for China). Last year 70% of the French people between 15 and 30 said that their job preference was to be a civil servant and the reason given by more than 80% of them what the security of employment. This sentiment is even relayed by the French President Jacques Chirac who said: “Liberalism (i.e. free markets) is as dangerous an ideology as communism and, like communism, it will not prevail.” (quoted in the Financial Times November 2nd, 2005). France today doesn‚Äôt accept a world where globalization has created a different kind of competition. The country is in denial and won‚Äôt be in a position to solve its crisis until the French people recognize that only growth and the right environment for entrepreneurs create jobs.

  16. Jean Jacques

    From a french point of view, you have seen the point : the riots are due to a poor government design. The ability to govern is corrupted by the fact that the Executive branch gains almost all powers.

    Didier well explained the way the law was passed using a confidence vote into the Executive.

    I would add that the National Assembly is also elected a month after the presidential election and has almost no power to control public spendings.

    Furthermore, the Judiciary, in its judicial prosecution branch, is under the control of the Executive – the Minister of Justice – enabling swift and tactical manoeuvers to avoid inquiries on many fields. This tends to ruin the legitimacy of many politicians who used to take advantage of it, especially Jacques Chirac.

    This whole body tends to favor confusion and the fact that, for many frenchmen today, the only counter-power is to take to the streets to demonstrate, this very law focusing all discontent.

    You could perhaps be interested in the fact that in this body of powers, french senators have even managed to pass a law allowing them to stay one more year at the Senate, their mandate reaching then 10 years ! quite a record in the West I suppose – assemblee-nationale.fr/12/dossiers/election_conseillers_2007.asp .

    The case was that there were too much elections scheduled in 2007 (presidency, national assembly, and local elections).

    One last thing to point out, from the french point of view, and concerning the “malaise” of the young is that Universities are on the verge to collapse : with open entrance for students, no selection and no money in the system, half of the students fail to graduate. Furthermore, for those who graduate, even in the Sorbonne, there is no job in the end and that often means going to London or elsewhere to find a job. That is, to my opinion, the main point of the issue : the incapacity of France to raise its University to a high level, letting it working in a soviet manner and allowing it to destoy half of the young who enter.

  17. Reece

    I think we started off in the wrong direction by looking at this from a ‘rational-choice’ perspective. I think it’s a social paradigm in Europe, but especially France, to see business as an imposition of power. A step in favor of government intrevention is a step towards progress; whereas, in this case, we have a step backward. It’s anathema to a progressive society when business interests raise the hand of government intervention when they’re so accustomed to the reverse. I don’t think it has much to do with individual choices or rational justifications, or illegitimate power overriding self-interest. I think it has to do with perceived power overriding perceived autonomy. It’s appropriate that this language sounds so Foucault-like in nature, both because it’s so intrinsically French and because there is undeniably a complex power network at play here. French citizens as a whole probably believe that public interest supercedes economic interests. Individuals should be autonomous from the economy, and the economy should serve individuals (and collectively, the public). When that autonomy is threatened by power (the government, in this case), they themselves become a concentration of power, and it manifests itself as active, willful resistance and violence. I don’t see that as rational, and I don’t think it properly takes into account self-interest (rather, it’s clouded by collective and public interest–the tragedy of the commons). All I see is basic power relations linked fundamentally with the expected roles of the economy and government in French society.

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