Employment

Figures

Framing compensations granted by judges to employees in the case of illegitimate dismissal

The measure is an adaptation of the regulatory provisions administering labor relations in the private sector.

Therefore, this measure has no direct impact on public finances in the short term. In a longer-term perspective, the measure is expected to strengthen the fluidity of the labor market, and thus have an impact on the revenues of social contributions and on the expenses linked to return-to-work benefits.

Campaign promises

In an electoral campaign marked by speeches promoting the end of “traditional employment”, and in contrast with François Hollande, who had asked during his campaign to be judged on his ability to reverse the unemployment trend in France, a lot was expected from candidate Macron regarding labor laws and active labor market policy.

Emmanuel Macron was confronted with the reality of a dual labor market, which opposes qualified workers benefitting from a stable job, to low-skilled workers moving from one short-term contract to another. He put forward several objectives:

• Making work more lucrative for the employee and cheaper for the employer. The candidate wished to increase workers’ purchasing power by reducing social contributions – financed through the increase of general social contributions (CSG), the amount of which depends on one’s wealth, and an increase of the “prime d’activité”, an incentive to continue working or to go back to work. Both measures aim at increasing the minimum wage by 100 euros per month without tax. Finally, through a reduction of the employer’s tax burden on the minimum wage, and the creation of “emplois francs”, a system enabling employers hiring young people from low-income areas to benefit from a bonus over 2 to 3 years, the candidate wished to reduce the cost of hiring low-skilled workers.
• Making private initiatives less risky in France. The candidate’s credo was to get rid of rigidity. He proposed the creation of a digital labor law, the reduction of social contributions for the self-employed, the absorption of the social security scheme of the self-employed (RSI) within the general social security system. He also defended the implementation of a maximum and a minimum compensation for illegitimate dismissals during labor litigations, a measure which had been amended during the assessment of the labor reform led in 2016 by former Minister Myriam El Khomri.
• Establishing new job securities
• Through the creation of universal unemployment benefits: the candidate wished to extend the access to unemployment benefits to employees having resigned from their jobs. The effects of such a measure would be compensated by an increased monitoring of the job-seeking process: the suspension of unemployment benefits after declining 2 decent job offers. With such important changes in the system, the State would be in charge of monitoring unemployment benefits.
• By strengthening and simplifying vocational training. As the French system is very complex and unclear, the candidate proposed to turn most companies’ current financial contributions into funds dedicated to workers’ individual rights to training. Moreover, he wanted to raise awareness on the outcomes and trajectories of each training (actual employment, impact on careers, etc.) Finally, the candidate committed to investing massively in vocational training (the training of 1 million young people entering the labor market, and 1 million of low- or unskilled workers).
• Through apprenticeship. The electoral program’s aim was double. First, to increase the attractiveness of apprenticeship for both companies and young people. Second, to put work-study contracts at the center of vocational education. In order to do so, Emmanuel Macron proposed to unify existing subventions into a single benefit, to align the 2 different types of work-study contracts, as well as to associate each different professional sector in the definition of these programs.

Overview

The labor market situation in France is improving, as demonstrated by the increase of the employment rate for the 15-64 year-olds – it went from 64.7% to 65.7% between 2016 and 2017 (Emmanuel Macron only started his term in May 2017) -, or the decrease of the unemployment rate – it went from 10.4% to 8.6% between 2015 and 2017. Given the recent reforms, projections anticipate a continuation of this trend. In its annual survey, the French employment platform, Pôle emploi, revealed an 18.7% increase in hiring promises. On the other hand, the unemployment of young people, in spite of an encouraging evolution (it did decrease from 24.6% in 2016 to 22.6% in 2017), remains far from the European Union average (16.8%).

As of the first weeks of the new term, the government presented an ambitious agenda to social partners, including a reform (which has now been adopted) of labor laws, as well as the career paths bill, presented on 25 April 2018 to the Council of Ministers, and the following reforms:

• The unemployment benefits reform, in line with the agreement reached by social partners on 22 February 2018. This reform aims to reach 3 joint goals: implementing unemployment benefits for workers having resigned (under certain conditions) and the self-employed, strengthening the monitoring of the unemployed, and fighting the abusive use of short-term contracts (90% of hires in France are temporary). The government is also planning on modifying the governance of the National Professional Union for Employment in Industry and Trade, and the governmental agency in charge of unemployment benefits (UNEDIC). It is thus abandoning the idea of nationalization, which was promoted during the electoral campaign.
• The vocational training reform presented on 5 March 2018. The aim of this reform is to reinforce workers’ rights to training via the personal educational saving account (CPF), associated with career counselling, the launch of an online platform allowing users to benefit from training schemes, the reform of funding sources for vocational training (and more generally, the collection by the URSSAF – private organizations collecting social security contributions – of all vocational training contributions) and the creation of a national regulation agency for vocational training and work-study contracts.
• The apprenticeship reform, presented on 9 February 2018. The government wishes to make the system more attractive by revalorizing apprentices’ wages, creating new incentives for companies and softening the labor law for apprenticeships. A single contribution from companies, collected by the URSSAF, will compensate for the removal of the apprenticeship tax in order to finance apprenticeships and make contracts more professional. The system’s monitoring is central to this reform (in particular overseeing all financial resources and fixing a payment rate for contracts) and should become the responsibility of professional sectors rather than regions, by 2020.

Given the significantly high unemployment rate (especially for young people and low-skilled workers), the labor market segmentation, and the increasing lack of digital skills, it is crucial for the government to increase the access to the labor market. It is one of the Big Investment Plan’s priorities, as it will invest 15 billion euros during the presidential term in order to train 2 million low-skilled workers and guide them towards employment, as well as to  fund experiments in national education and support the transformations of the higher education system.

Analysis

These reforms have been led without any marked difficulty so far.

The reforms related to labor laws have been managed quite easily, given the unions’ weakening in the private sector and the detailed announcements Macron made during the presidential campaign. The government clearly had the upper hand to implement these reforms in the beginning of the presidential term.

The reform of labor laws deeply transforms collective labor relations at the company level (systematic shift to unanimity agreement for an agreement to be valid, restructuration and simplification of the institutions representing staff members, implementation of adequate procedures in very small companies, the referendum option). Yet these measures will need some time to come into action, and some of both the unions’ and the employers’ stances will need to change (especially given the majority agreement obstacle, which is problematic in some companies). Besides, companies will need to be driven like never before in their negotiations at the professional branch level, given that new negotiation fields will be at their disposal. We can fear that divisions between workers and employers within companies, as much as companies’ weaknesses (in France, branches are too small and too numerous) will prevent them from seizing the new opportunities introduced by the reform.

No doubt the measure with the most immediate effect will be the establishment of a maximum compensation granted by judges to employees, in the case of illegitimate dismissals. With such a scale, dismissals are less uncertain for employers, and dismissed employees are more willing to reach compromise before going to trial. The maximum cost of a dismissal therefore becomes inferior to that in Spain or Italy, where similar reforms have been implemented. In some cases, it will also be cheaper than in Germany (where trials are scarce but can be very costly for employers). The deregulation of procedures for collective redundancies (introduction of collective breaches, assessment of companies’ difficulties according to national – rather than global – criteria) will affect less people, but is also important, at least symbolically. It could indeed restore the confidence of investors and especially fuel foreign investment.

More generally, this labor law reform, which is an important signal at the international level, is also an asset for the French territory’s attractiveness. It is likely to play a significant role in the general opinion foreign investors may have of the French situation. All the more, while these reforms might have been adopted quickly and without great difficulty, they were initially deemed impossible by many commentators because of the previous government’s repeated failures in this domain.

Regarding the vocational training reform, the government had to face the united opposition of both employers’ organizations and trade unions concerning funding networks and the strengthening of the personal vocational training account (CPF). These trends tend to weaken the position of professional sectors and thus the role of trade unions and employers’ organizations in the system’s regulation. The same goes for Skills Investment Plan (PIC), worth €15 billion, which plans on training 1 million low-skilled job seekers and 1 million young people who are marginalized from the labor market, by 2022. However, these policies, which might seem very technical, triggered very little reaction among public opinion, thus allowing the government to progress without any interference.

This vocational training reform is probably the most important in this field since the founding law of July 1971, which implemented a mandatory contribution, as well as a collection and funding system supporting companies’ efforts in the matter. The complete revision of the personal vocational training account launched in 2015 (rights in euros, a larger and unmediated choice by professional sectors, more funding, etc.) allows for the creation of a real individual pillar for vocational training. The expected impact is further autonomy for workers and a less “prescriptive” decrease of vocational training.

The reform of the collection network (monitored by the URSSAF) is a decrease in the number of funding operators for each professional sector (OPCA), and the redefinition of their role, which will now be more focused on the counselling and support of small and medium-sized companies. It contributes to the simplification and the reduction of the system’s management fees. However, the conditions for this reform to be successful are not necessarily granted. On the one hand, the funding dedicated to the new personal vocational training account (0.3/0.4% of the payroll) will have to be enough. On the other hand, the new career counselling service needs to be powerful enough and have the funds required for its quality to be ensured, yet it also needs to be easily accessible to the employees who are the most at-risk job-wise.

Regarding apprenticeship, it is worth noting the consensus around most measures: simplifying subsidies, loosening labor laws for apprentices, etc. The government did not tackle the vocational schools issue, despite it being a key element of initial vocational education in France. The measures thus did not spark any opposition from unions. The only controversy came about with the transfer of funding and governing competences from regional authorities to professional sectors. Until now and since the first measures of decentralization in 1983, these used to belong to regions. The government did not pay too much attention to these regional protests, which were in fact quite disorganized.

Nonetheless, the planned apprenticeship reform raises some questions. The transfer of competences from regions to professional sectors, meant to reduce the bureaucracy for regions’ decisions regarding the opening or closure of sections, has not been preceded by any impact assessment or expert report. This reform thus poses delicate questions: how can each professional sector lead territory-based policies regarding apprenticeship? How will they use the leverage of coverage professional sectors will have access to, even though they have never been structured at the territorial level? Their dispersion and extreme diversity (particularly in terms of fundraising dedicated to apprenticeship) will also require a very high level of financial equalization, which, until now, was managed by regional authorities. How will branches manage, with a uniform level of coverage at the national level, the extreme diversity of training costs from one vocational training center for apprentices (CFA) to another (diversity often justified by different geographical locations or different training qualities)? How can CFA and vocational schools converge, and how can vocational training maps (which are managed by regions, in order to ensure a minimum coherence between them) disappear? More generally, by dealing only with apprenticeship rather than with the entire vocational education (thus including vocational schools, where 75% of students having chosen a vocational career go), the reform is partly missing the point.

The reform of unemployment benefits has not met any particular difficulty, as the government has merely had “good news” to announce: the extension of employment benefits (even if it is very restricted, for financial reasons) to the self-employed and to some of the workers having resigned from their jobs, without any rise in contributions from their wages. The governance’s evolution (the creation beforehand of a negotiation frame by an orientation document from the government) only translates usual practices into law. The different professional sectors were reassured to see the threat of UNEDIC’s nationalization drift away, a change they were reluctant to during the presidential campaign.

The second part of the unemployment benefits reform (the reinforcement of job-seeking monitoring) was also fairly easy to pass: it had already been announced during the electoral campaign, it was continuous with previous reforms, which had already been accepted by public opinion (sanctions after having refused 2 reasonable job offers), and the topic is systematically popular. The only notable improvement is the transfer of the competence of sanctions (removal or reduction of unemployment benefits) from the regional prefects (who lacked the resources to carry out this mission) to Pôle emploi. The sanctions can therefore be expected to be effective.

Even if this reform is in line with campaign promises, one may note it still lacks ambition. The intensification of job-seeking monitoring is no substitute to a much-needed reflection on the role of some of the unemployment benefits’ parameters, in the succession and abuse of short-term contracts, as well as the marginalization of a great number of unemployed people who are situation of poverty. The referral of these subjects (the question of abuse of short contracts and the frequent shift between employment and unemployment) to negotiations between the social partners, which should be concluded by the end of the year, will have to be closely monitored.

On all these topics, the government has acted in coherence with campaign promises and never really diverted from its initial trajectory. Only the unemployment benefits reform is significantly below what had been announced during the campaign: instead of implementing universal unemployment benefits as initially planned, the latter was only restrictively enlarged.

It is obvious these reforms are ambitious and they are very often in line with different proposals put forward by Institut Montaigne in recent years, despite a variation in degrees. Moreover, it will certainly take some time for their impact to materialize.

And now?

Despite undeniable ambitions, these reforms do not mark the final step of the process. In some cases, adjustments will even probably have to be made.

The labor laws reform, which puts social dialogue at the center of the system, will only be a real success if the government manages to reduce the number of different professional sectors making use of the judicial means provided by the El-Khomri labor market reform, conducted during the previous presidential term, and the current reform. It will also be able to rely on the opinion of a recently formed committee of experts, in order to avoid extending professional sector agreements that would be opposed to economic development and the labor market, because they would skew fair competition, between existing companies and new ones.

Besides, some points of the labor laws, which haven’t been tackled by the reform (or left to the free appreciation of professional sectors), will probably need to be revised. This will especially be the case for employment contracts: the legislation is very rigid in France on the use of short-term and temporary contracts; employment contracts for projects, and the integration in the employment contract of predefined termination clauses.

In the margins of the labor laws, the “economically dependent self-employed workers” issue (particularly workers of online platforms) will need to be solved. The extension of employment benefits to a few thousand of them doesn’t live up to the challenge. A new reform will have to be implemented, detailing, clarifying and securing the rights and duties of this category – admittedly a minority but with a very high growth rate – on domains like social protection, job protection and vocational training.

As for unemployment benefits, and beyond the reinforcement of job-monitoring – a measure that will only impact a small minority of people who have been unemployed for a long period of time – the question of the role of unemployment benefits and the rise of poverty and job instability should be tackled in priority. This is the way in which employment benefits should be reformed: through the modification of calculation parameters (after a careful evaluation of the impact of current eligibility criteria, among the most “generous” in the OECD). As for the introduction of a bonus-malus scheme according to the number of breaks or termination of employment contracts experienced by the company, it is probably economically relevant, if it can be implemented in a simple way. From this point of view, the winning formula could be deregulating the terms and conditions of short-term and temporary contracts and implementing a bonus-malus scheme on employers’ contribution to UNEDIC.

Regarding vocational training reform, financial resources dedicated to the new personal vocational training account will not be sufficient to fund it entirely, if its scalability were to be successful. Other resources, paid by companies and/or workers at the end of contracts or during the ending process (a segment of termination fees) could be used, as suggested in a recent report published by Institut Montaigne in January 2017.

Likewise, additional funding for career counselling (CEP) beyond the €250 million foreseen in the reform, which workers could make use of by referring to their personal vocational training account (CPF), should also be provided (in the reform, the CPF still makes it possible to only finance training activities).

Finally, one may regret that OPCA membership is still mandatory. Memberships could be made optional. We could also imagine a “return on investment” scheme that would support small and medium-sized companies (each Euro that is contributed could allow for financial support superior to the initial sum from their OPCA) by encouraging them to become members (Institut Montaigne published a report in January 2018 on this very topic).

As for apprenticeship, there is probably no viable solution without structured and organized cooperation between the regions and the main professional sector. Tthe reform will therefore be adjusted in order to implement a real cooperation (possibly a co-decision scheme) between key players in terms of the opening and closure of sections, and of the monitoring of training centers for apprentices (CFA) based on performance. The transfer of the entire competence from vocational schools to regions, the development of a map for vocational education, and the organization of the cooperation between both training services under regional authority are also crucial measures to put an end to the competition between training centers for apprentices and vocational schools.