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ORIGINAL FRENCH ARTICLE: http://www.humanite.fr/journal/2006-03-18/2006-03-18-826497

by By Paule Masson

France: Face-off on “First Job Contracts”

Translated by Patrick Bolland

Translated Friday 24 March 2006, by Patrick Bolland

Pierre Cahuc, economist at the French School of Statistics and Economic Administration (ENSAE) and author of a report on a single form of labour contract discusses the new labour contracts with Maryse Dumas, secretary-general of the CGT union federation.

HUMA: With the CPE (“first job contracts”), Prime Minister Dominique de Villepin is saying that employers will hire more employees if they can also fire them more easily. What do you think about this?

MARYSE DUMAS. It’s not by changing labour-contracts that there will be more hiring. To create jobs, there has to be economic growth, grounded in an alternative economic policy and the well-being of workers. It isn’t repeated often enough that our society will be better when the social situation improves. Employees perform better when their work receives recognition, when they contribute through their wages to a high level of spending on social programmes. The government has chosen an ideological position that reflects its own interests, but it is completely ineffective as an economic option.

PIERRE CAHUC: On the contrary, I think that the labour-contract does influence employment. The costs incurred in laying off workers has an impact on profits. Making it more expensive to fire workers contributes to the decision to hire fewer employees, but also to lay-offs. The final effect on overall unemployment figures is ambiguous, which doesn’t mean that it is not significant. Economic growth is itself influenced by the wording of labour-contracts, since it is the upgrading of manpower towards more productive jobs that enables growth to occur. This movement of employees is enormous: in France there are an average of 30,000 hirings per day, and 30,000 leaving their jobs, half of which are the results of the end of fixed-duration contracts (CDDs).(1)

So we need legislation that will allow for the transfer of workers between jobs while still providing guarantees of security in their career paths. The CPE (contrat de première embauche - first-job contract) doesn’t contribute anything to this (1). It is based on a logic that has been around for the last 20 years that consists in reforming the labour-market at its margins. For a long time the CDD did create flexibility at the margins, by making it hard to gain access to stable jobs. Employers will hesitate before transforming a CPE into a CDI - contract with no termination date (1) - just as they hesitate to change CDDs into CDIs, all the more so because the CDIs contain major job-protection clauses.

MARYSE DUMAS. But can we talk about hiring without asking about the quality of jobs? Not all jobs involve real quality. The increase in marginality over the last 20 years has pushed salaries downwards. This is particularly true for youths. By developing job-rotation, using employees with absolutely no job security, by subcontracting more and more in a downward spiral, companies are experiencing problems in the quality of finished products and productivity. By not investing in stable jobs, they may be acting against their own interests.

HUMA: There has been mass unemployment in France for the last 20 years, despite creating numerous different kinds of labour-contracts. Do you think the new CPEs fit into the same pattern?

MARYSE DUMAS: Perfectly! They used to tell us: “Better a contract with no guarantees at all than no job at all”. Now they’re saying “Better a CPE than a CDD - better a job with no guarantee of how long it’ll last - any time at all - than one of a fixed duration”. Each new type of contract the government introduces reduces the job-security and that just feeds into reducing social well-being. Precarity puts employees into a jeopardy they find harder and harder to emerge from. This marginality keeps unemployment at a high level and threatens the guarantees of those who are not yet made insecure.

PIERRE CAHUC: Lack of job security has not actually increased, if you take France as a whole. Today, someone with a CDI (1) who’s worked two years with the same employer remains longer in the same work-place than the equivalent worker 20 years ago. On the other hand, those who’ve worked less than two years are more precarious today than 20 years ago. Inequalities of precarity have increased because of the increase in unstable jobs and the fact that the CDIs have become more rigid, offering more protection to employees. In 1973, it became more costly to employers to lay off workers in a number of countries, in order to try to limit the rise of unemployment following the petrol crisis. In the 80s and 90s the failures of these employment policies led many countries - but not France - to change the wage-relation in the direction of “flexi-security”, providing protections to individual workers, but not their jobs. You talk about low wages, but I want to add that the minimum wage in France has increased a lot in France since 2002, because of the catch-up of different levels of workers with the 35-hour work-week introduced by the Socialist government.(2)

MARYSE DUMAS: But this didn’t cost employers much, since they got a reduction in their social-insurance contributions.

PIERRE CAHUC: The reduction in these costs hardly compensated for the increases in wages. Employers hire if the new employee contributes more through his labour than he costs. This is how the economy works. Increases in the minimum wage don’t benefit the least qualified. In the UK, like in many countries, the minimum wage is lower for younger workers, since they haven’t yet acquired the experience older workers possess. You can’t deny this evidence. If you want to pay high wages to youth without creating an obstacle to insertion in the job-market, you have to do it without increasing their labour-costs to employers.

MARYSE DUMAS: Youth are today forced to accept jobs below their level of educational qualifications. The right approach would be to acknowledge their qualifications and raise salaries to reflect this and then to eliminate jobs at the bottom of the pay-scale. If you think there’s a problem of exaggerated labour-costs for unqualified workers, this is just an appearance, not the reality. The reduction in social-insurance payments by the bosses reduced their labour-costs without any clear benefits for workers.

PIERRE CAHUC: The hiring of unqualified workers stopped falling when these reductions were introduced. In the end, employer deductions for social insurance are just an institutional detail. We could easily imagine other mechanisms ...

MARYSE DUMAS: No, we have absolutely no idea of their effects on employment. Even the Council for Job Orientation, in its most recent report, was unable to give a precise figure. We at the CGT are proposing to reform the whole social-insurance envelope. Today, this penalizes labour-intensive companies, with low added-value. The system has to be changed to encourage job creation and not to give hand-outs.

HUMA: The top 40 companies quoted on the stock exchange - the CAC 40 - have just declared profits of 85-billion euros. Is there really a problem of the competitivity of French firms?

PIERRE CAHUC: These firms are very little affected by the problems we’ve been discussing because they make most of their profits abroad and, in France, most of their labour force is high-skilled. The problem arises in the service industry, the main low-wage sector, which employs youth and women. Precarity comes from small-scale employers.

MARYSE FUMAS: a good number of the CAC 40 companies’ profits are earned through sub-contracting. Out-sourcing and affiliating with other companies creates groups making massive profits. Pressure is out-sourced onto employees working for sub-contractors. Historicially, a major part of workers’ rights have been gained through employees working for large-scale companies. Since the 1970s, large-scale industries have disappeared. There are as many unskilled workers and other employees, but they are now in the service industries, which in turn depend on the large corporations. In this way, the companies manage to shred up collective agreements, side-step union rights and avoid workers’ collective demands.

HUMA: Prime-minister Dominique de Villepin has announced a complete overhaul of labour contracts. Pierre Cahuc, you have proposed a fusion of the CDD and CDI (1) to create a single form of labour contract. Is a reform of the labour contract really necessary?

PIERRE CAHUC: The existence of 2 types of labour-contract, the CDD of fixed duration the CDI (1) with no termination date, has created a two-speed system, with important threshold effects. It is very inefficient. The CDI is also is also protected in a bad way. The procedures for economic lay-offs are very heavy as a result of retraining and the control magistrates can impose on assessing the economic motives for lay-offs. Jurisprudence allows lay-offs to maintain productivity but not to increase productivity. This distinction is very hard to establish in front of a judge. Determining whether or not a lay-off is justified according to company-performance should not be up to judges. A judge can, on the other hand, determine whether a laid-off employee is replaced immediately by another doing the same tasks. Moreover, most companies are not equipped for re-classifying their employees in the right conditions.

These regulations are therefore ineffective. The best proof of this is that it is largely by-passed. There are today three times more lay-offs for personal motives than on economic grounds! We therefore propose diminishing judges’ control over lay-offs and reducing the onerous requirement of companies to re-classify laid-off workers, and to move towards a system where the risks of job-losses are more equitably shared between employers and employees, with employers paying into a fund to finance public employment services, so that laid-off workers can benefit from sufficient income and support in finding new jobs.

MARYSE DUMAS : This reasoning only concerns a very small proportion of terminated labour-contracts : collective lay-offs in large companies. I don’t want to put everything in the same basket, but all the time people are using the example of these procedures only involving a small number of people who sign-on in the employment offices (the ANPE) to justify an overhaul of the right to lay-off workers. By creating the "new jobs contract" (the CNE) and then the CPE, the government is changing the balance of workers’ rights to jobs and creating more freedom for employers to lay-off workers without just cause.

PIERRE CAHUC: I agree with you in this last point. There is a problem here. The CPE creates a huge legal vacuum. The work has been botched up.

HUMA: Does the CGT union-federation support the idea of a single contract?

MARYSE DUMAS: It’s not the lack a single labour-contract that worries us most. Our reasoning is based on the idea that the CDIs - contracts without any built-in time limit - have to become the norm. But there’s no question of approving a sort-of “pseudo-CDI” that has been copied to the CNE and the CPE, in other words that permits immediate lay-offs without having to justify the cause. Adopting such a contract makes it very difficult for unions to make specific demands but also to force the bosses to respect the most basic rights within their companies. Your report, Mr Cahuc, proposes to include financial compensation for lay-offs as part of the labour-contract, and so an agreement between the employee and the employer. Yet, without collectively-binding guarantees, the employee ends up the loser. Moreover, it is important that committees of workers’ representatives and unions have the right to make alternative proposals. The Boss must not be the sole arbiter on the future of the company.

PIERRE CAHUC: No, compensation for lay-offs would not be fixed from the start, but negotiated on the basis of a minimum amount. This should act as a stimulus for negotiating, rather than deny a place for negotiations. In the end a company negotiates because of the potential costs of not negotiating. It will open discussions to reduce its expenses, find agreement to avoid paying a special tax.

MARYSE DUMAS: The right to lay workers off in France doesn’t reduce - far from it - workers being fired. You can’t say it’s complicated to lay off workers. I don’t think a special tax would work. Companies have an overall responsibility in our society. They can’t just sit back and buy labour when they need it and then chuck it away. The employees have to be able to live decently from their work, have life-projects and rights which don’t depend on the bosses’ good-will. Our project for occupational job security is just an answer to lay-offs. But when workers are separated from their jobs, we support maintaining the work-contract and wage-contract until they are satisfactorily relocated in another job, and this should be paid by the employers’ contributions.

[Translator’s footnotes]

(1) [footnote cited at various times in the article] The massive street-demonstrations against « youth job contracts » in March 2006 were in opposition of a new kind of labour contract, for youth entering the job market (CPE). Previously there were generally only 2 kinds of contract CDD and CDI, although the CNE has been in existence for a few years ...

CPE: Contrat première embauche - the “first job contract” passed into legislation in February 2006. The key element is that the employer can terminate the employment contract at any time, without having to justify this decision.

CDD: Contrat de durée determinée - a fixed-term labour contract, typically for six months or one-year. These contracts are widespread in the tourist industry, the leading economic sector in France.

CDI: Contrat de durée indeterminée - this is a contract that gives employees the right to retain their jobs indefinitely, unless the employer can show (before a labour tribunal, if the employee demands this) “just cause”, including economic reasons (discussed in this article). It is these contracts that the employers’ association (Medef) opposes most vociferously.

CNE: Contrat nouvelle embauche - this has no specified duration and is only applicable companies with less than 20 employees (96% of French companies). During the first 2 years of working under such a contract, the bosses can break the contract without having to show “just cause” but are required to pay the laid-off employee severance-pay of 8% of her/his total earnings with the employer. After 2 years, the contract becomes a CDI.

(2) The minimum salary in France - known everywhere as the "smic" (“Salaire minimum interprofessionnel de croissance”) - is currently 8.03€ an hour (before taxes and social security contributions), the latest rise being from 7,61€ on 1 July 2004. This means a gross weekly income for a 35-hour work-week of 281.05€ (266.35€ in 2004).

Article published in l’Humanité 18 March 2006

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