French Labour Reform Will Fuel Fast Improvement In Job Creation, Boost Economy

french labour reformMacron arriving at the Elysee's Palace

French President Emmanuel Macron’s government has announced reforms to loosen labour market regulations, fuel a fast improvement in employment numbers and boost the economy.

In the second quarter, GDP grew 1.7% compared to a 1.1% rise in the first. France’s jobless rate is currently close to double-digit.

After weeks of negotiations with trade unions over the summer, Macron’s proposals have now been submitted to the National Assembly.

Bankinter’s anlaysts says the reform is a positive move since it will make the economy more “dynamic and speed up job creation”.

In reality, the reform is very much along the same lines as what has been done in Spain and has produced very good results.

Two of the main pillars of Macron’s reform are: a reduction in the cost of dismissals and a change to the collective bargaining process.

With regard to the first point, Bankinter experts note that there has been “no limit” on the amount of indemnization paid in France for an unfair dismissal. “It depends on a court ruling when there is no agreement between the parties involved.”

Once the labour reform is approved, the maximum indemnization payment will be 20 months salary for workers with 28 or more years of seniority. And the minimum will be one month for workers with less than one year seniority. In the case of SMEs, the maximum amount will be 2,5 months for workers with nine years or more of seniority.

In terms of collective bargaining, which is currently obligatory, Bankinter explains the proposed changes:

The reform maintains the option to reach sector agreements, but they are no longer obligatory. SMEs can negotiate with an employee, who doesn’t need to be a union member or been chosen by the rest of the workforce.

This person can submit proposals for labour agreements to the workforce for them to vote on. And if the majority votes in favour, then this will be representative of all the employees.

Another key point included in the reform is that the health of companies will now be assessed on a national level only, as happens in most of the rest of Europe. French labour courts currently assess this at the global level to decide whether a firm had economic grounds to fire workers.

Bankinter notes that the French labour market is “still one of the most inflexible in the world.” It says the decline in the jobless rate since its highs at the peak of the crisis “has been very modest up to now”, in comparison with Spain.

It’s almost certain the reform will be approved by the National Assembly, given Macron’s party’s absolute majority, the analysts say.

The most immediate effect of the reform will be something of a drop in French bond yields…(Currently the 10-year bond is at 0,665%; the 15-year at 1,047% and the 30-year at 1,745%.