France and Flexible Employment

This article could be useful as an illustration of the EU context in relation to employment in general, and flexible employment in particular. Attracting inward FDI is arguably a significant benefit of UK membership of the EU, and one of the advantages which the UK can offer compared to, say, France is relatively flexible employment laws.

The article centres on the closed factory of Veninov, a plastic printing factory in Lyon, France. In spite of the fact that the factory has been closed for 6 months, dozens of former employees continue to turn up every day “...to sweep, oil, maintain, and guard the plant.” They hope that a buyer for the business will be found, and want to maintain the facilities in working order in the hope that this will make it a more attractive investment, which can be restarted relatively easily.

However, it may be that France’s employment laws make such an investment unlikely. I think that the article talks around this issue and makes it hard to grasp the key point until you get close to the end, when it talks to Philippe Magne, chief executive of Arcad Software, a small company with 30 employees that exports its computer programmes to 33 different countries, including the UK. He says that:

“I own a small business. In 2008 I had up to 62 employees. But because of the crisis we had to reduce our wage bill. The redundancy payments were so high it almost bankrupted the company.

“We need more flexibility for employers. When we lay people off in a small organisation like ours it’s not because we want to cream off more profit, it’s simply because we don’t have the business.

“When we get new business we need the power to employ people quickly without fear that we can’t afford to lay them off in a downturn. At the moment hiring people represents a significant risk.”

In the approach to the Presidential election, Mr Sarkozy is promising to introduce new laws that will make it easier to agree these short-term contracts. However these are unlikely to attract many votes from employees in France, who are used to secure employment; an unemployed civil engineer is quoted who says that he can find short-term contract work, but ‘wants something better’.

However, with unemployment rising for 7 consecutive months in France to 9.7% in November, government has to find policies to restore their macroeconomic objectives. Generous redundancy payments allow ex-employees to receive a portion of their salary for the next two years from unemployment benefit. This makes the cost of redundancy very high, and deters employers from taking on staff; therefore it also limits investment and growth.