France’s rigid labour laws – Labour pains

Two cases that help explain France’s high unemployment - Published on The Economist, November 4, 2010.

CALM has returned to the streets and petrol to the pumps. But for all the turmoil and tear gas that the government’s mild pension reform prompted, it has left intact an underlying social model based on high taxes and onerous rules for firms and employees, plus generous benefits. Two recent controversies expose the wide gap between what the French expect and what foreign businesses will bear … //

… There was equal indignation over another foreign firm, Molex, an American electronic-parts maker that supplies the car industry. Last year Molex decided to close its French plant near Toulouse, which had been unprofitable for years. It agreed redundancy packages, which have so far cost it €30m ($42m), and helped finance alternative employment. But in September 188 former employees filed a suit against Molex, contesting their redundancy.

Molex promptly suspended further redundancy payments, arguing that it faced too much uncertainty over future costs. By chance, last week the group reported net profits in the three months to the end of September of $75m, after a loss in the same period of 2009. This sent the unions into a fury, and Christian Estrosi, the industry minister, to their defence. He called the firm’s behaviour “scandalous” and ordered French carmakers, including PSA Peugeot Citroën, a private company, to stop doing business with Molex. For its part, Molex denounced the “aggressive” approach of the French government and its “negative attitude to business and foreign investment”.

France is popular with foreign investors thanks to its skilled workforce and excellent infrastructure. But many complain that labour law and heavy payroll taxes deter job creation. Bosses believe some workers try to get fired in order to win generous tax-free redundancy. Small firms buy machinery to avoid taking on staff. Yet most French reporting of these two cases, egged on by Mr Estrosi, has drawn a caricature of wicked bosses twisting the rules to exploit workers. Producer sympathy triumphs over consumer interest. And suspicion of profit precludes sensible discussion of the cost to France in lost jobs. (full text).

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