US embassy cable - 05PARIS5694

UNCLAS SECTION 01 OF 02 PARIS 005694 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR EUR/ERA, EUR/WE, DRL/IL AND INR/EUC AND EB 
COMMERCE FOR NAAS 
DEPT OF LABOR FOR ILAB 
DEPARTMENT OF COMMERCE FOR ITA 
 
STATE PASS USTR 
 
E.O. 12958:  N/A 
TAGS: ECON, ETRD, PGOV, PREL, ELAB, PINR, FR, EUN 
SUBJECT: FRANCE: SEEKING MORE LABOR FLEXIBILITY 
 
 
NOT FOR INTERNET DISTRIBUTION 
 
Summary 
------- 
1.  (SBU) PM de Villepin has announced an emergency 
employment plan, which will introduce more flexibility into 
the rigid French labor market.  The plan creates a new type 
of hiring contract that will allow companies of up to 20 
employees to lay off workers anytime during the first two 
years of employment.  The employers need not justify the 
dismissal but must still provide some compensation.  Unions 
have protested but appear to be waiting to see if other 
issues, such as lower purchasing power resulting from the 
surge in oil prices, will provide a basket of issues to 
rally around.  End Summary. 
 
Introducing Flexibility in the French Labor Market 
--------------------------------------------- ----- 
2.  (SBU) Bypassing Parliament, PM de Villepin rushed 
through this employment reform designed to spur job creation 
by cutting the cost and red tape associated with layoffs in 
France.  Implemented by government decree under an emergency 
procedure on 4 August -- while most of France was on 
vacation, rather than on the originally scheduled date of 1 
September -- the new type of contract is called the "New 
Recruit Contract".  It is intended to allow small companies 
of up to 20 employees to more easily hire and fire new 
recruits during the first two years.  The new contract will 
provide for financial compensation for the employee if the 
contract is terminated before the end of end of the two-year 
period.  The employer is also required to give the new hire 
"sufficient notice" of a pending layoff decision. 
 
The Broader Emergency Employment Plan 
------------------------------------- 
3.  (SBU) This employment incentive comes on top of a 
broader measure that would abolish by 2007 all French 
employers' Social Security contributions on wages equivalent 
to the French SMIC (or minimum wage, currently a 8.03 Euros 
per hour gross).  It is part of a comprehensive "emergency 
employment plan" presented by de Villepin in early June. 
The plan calls for a 4.5 billion state-financed effort to 
facilitate the return to work of the unemployed, the young 
and the over-50 population.  Other resources "already 
committed to employment policy" will finance some employers' 
exemptions from Social Security contributions.  At the same 
time, to remedy a generally acknowledged misuse of the 
unemployment benefit system, the new emergency employment 
package introduces sanctions for repeatedly refusing offers 
of reasonable employment, a first in France. 
 
Trade Union Discontent 
---------------------- 
4.  (SBU) Unsurprisingly, French trade unions immediately 
issued a call for action in September (after the vacation 
period) to protest against the increase in "low-wage traps" 
that they claim will result from the "New Recruit 
Contracts."  Union representatives believe that the surge in 
oil prices and the resulting "drop in purchasing power" has 
handed them a combination of issues which may rally the 
French populace against the Government's reform program. 
 
5.  (SBU) Trade unions have announced that they may also 
delay action until October to give themselves time to 
present a united front.  Some unions said they will test 
their call for action in French regions first, before 
calling for nation-wide action.  In the meantime, the 
business community has responded positively to the new 
measures.  The new head of the French employers' federation 
MEDEF, Anne Parisot has described the new hiring contracts 
as "a first chance for France to set in motion, from its 
smaller firms, the growth movement that we need." 
 
6.  (SBU) COMMENT:  The trade unions had hoped that their 
call for united public and private sector "mobilization" 
against the new contracts would gather momentum as people 
returned to work in September.  However, by introducing the 
scheme in the doldrums of August, the GOF has managed to 
slow down any momentum that protests might have had. At this 
point, the unions believe they need to cast their net more 
broadly to try and tap into perceived consumer discontent 
about higher oil prices, and the resulting drop in 
purchasing power.  They may find there is little appetite 
for a fight.  End Comment. 
 
HOFMANN