OECD urges France to continue labour reforms

A key member of the Organisation for Economic Cooperation and Development has urged France to continue relaxing labour laws in order to make its economy more competitive.

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The OECD’s Deputy Secretary General, Rintaro Tamaki, made the comments to RFI on the sidelines of a conference on European competitiveness at the OECD’s Paris headquarters.

In May, after lengthy negotiations with unions and employer groups, the French government passed labour reforms giving employers more flexibility to cut working hours and salaries during tough economic times.

François Hollande’s government also introduced tax breaks for companies to alleviate the social charges they have to pay on wages. Labour costs in France are among the highest in Europe, according to the European Commission.

The measures are all part of President François Hollande’s “pact” to improve competitiveness and reduce record-high unemployment, particularly among the young.

Tamaki praised France for making these moves, but he says more still needs to be done.

“We have developed measurements of labour market restrictiveness. In that measure, the latest movement is quite a progress, but France is still more restrictive than the OECD average,” he said.

He is particularly concerned about the wide gap between permanent workers with generous social benefits, and temporary workers – often young and on short-term contracts – with no benefits or job security.

“We have seen, say, a very strict dualism between permanent workers fully protected from the risk of being fired, and the very fragile status of temporary workers. We should shorten the divergence between the two groups,” he said.

However, making labour markets more flexible is only one concern when it comes to restoring competitiveness in Europe, which has experienced little to no growth ever since the financial crisis in 2008.

France, for example, is in recession, and major firms like Peugeot Citroën are closing plants and laying off thousands of workers.

“[There are] many factors behind the loss of competitiveness of Europe. Perhaps the first one is labour market rigidity, which I’d say many European governments are addressing this issue. Secondly, innovation policies which support the efforts by companies, particularly the company’s propensity to invest. Third is, of course, entrepreneurship…to enable new firms to be born and exit very easily. More than 60 percent of job creation is made by those new firms,” Tamaki explained.

Javier Gimeno, a professor of strategy at the international business school INSEAD, agreed that France has made some good moves to improve labour flexibility.

He said another reform could be to encourage trade unions to negotiate with employees and individual companies more closely to come up with flexible solutions.

He says that’s already the case in Germany, France’s powerful neighbour that has avoided much of the economic malaise in Europe.

“For example in France, a lot of the debate tends to happen at the national level. And what that means is that the companies that are able to support those negotiations, they do well, but many others become uncompetitive. The German model is more of a firm-level approach to negotiations, through workers councils for example, and that has been shown to be more flexible. So if the company needs flexibility, the employees know that flexibility will help them save their jobs, and then there is a win-win between businesses and employees.”

Despite the gloomy picture in France, Gimeno says there is an appetite for change.

“When I talk to French people, what they see is that these types of policies are being adopted in other parts of the world, and France should. I mean, France has amazing wealth, amazing talent, and I think unleashing an entrepreneurial spirit and engaging with business will actually make this country even greater than it already is.”