Bon Temps for French Labor

Commentaire (Commentary), Winter 2000/2001, Paris

The socialist government of French Prime Minister Lionel Jospin has staked its leftist credentials — and political future — on a reform that reduces the workweek from 39 to 35 hours. The scheme is being phased in over a two-year period, with large companies forced to comply since the beginning of 2000 and the public sector and smaller companies (fewer than 20 employees) coming on board at the beginning of 2002.

With a shorter workweek, Jospin hopes to reduce French unemployment, which, although at a 10-year low, remains high even by European standards: 9.2 percent at the end of 2000, versus a European Union average of 8 percent. The logic is simple: If everyone works a few hours less, employers must hire more people to fill the gap. The government estimates that the policy produced some 250,000 jobs through November 2000. In an article in the French political quarterly Commentaire, Denis Kessler and Philippe Trainar criticize both the scheme’s economic logic and the government’s assessment of employment creation.

Kessler is vice president of Medef, the powerful employers’ federation, while Trainar is editor of the Revue Française d’Economie. The authors offer a scathing analysis of the putative link between job creation and a shorter working week. They argue that French unemployment stems largely from numerous supply-side constraints that cannot be cured — and probably will be made worse — by the cut in working hours. Kessler and Trainar estimate that the policy already has caused a 2.5 percent drop in the economy’s productive capacity (measured in number of hours worked) with no significant or durable effect on employment. Indeed, despite the country’s high unemployment rate, more than half of French companies report having difficulties finding qualified workers to satisfy growing consumer demand. The authors blame France’s high minimum wage, the heavy costs of hiring and firing, a lack of qualified workers, the unwillingness of workers to move out of their own region, and chronic underinvestment by private French companies.

The quid pro quo for business was supposed to be lower wages and greater flexibility in employment regulations, but the authors find little evidence of either. They calculate that the base hourly salary of workers has risen 5.4 percent in the last year. The authors argue that workers are happy to accept fewer hours without loss in pay but are not necessarily willing to brook any reductions of social protection in return. Labor strikes in several sectors of the French economy during late 1999 shortly before the law entered into effect sent a clear message that workers are unwilling to take cuts in pay or benefits as a result of the shorter workweek.

To help offset some of the rising costs for business, the state has foregone billions of francs in revenue from social taxes normally paid by employers. Kessler and Trainar find such financial aid insufficient and suggest that, ultimately, the private sector itself will have to finance assistance through higher taxes. Moreover, they warn that small- and medium-sized enterprises will be particularly hard hit when the legislation is imposed on them next year. These firms have far less scope to improve productivity or to avoid a higher overtime bill by employing new workers. The authors conclude that the state has no business intervening in a matter that should be resolved by negotiations between companies and workers.

In spite of their occasionally strident tone, Kessler and Trainar provide a useful corrective to much of the faulty economics used to justify the shorter workweek. But then, as Prime Minister Jospin himself explains, "L’économie est politique." ("Economics is political.") If the shorter workweek succeeds in convincing the rebellious French labor force to swallow otherwise unpalatable reforms, then the warnings of Kessler and Trainar may seem shrill in retrospect. With sufficient flexibility introduced by the back door, the 35-hour workweek may be seen in the future as just another step in the steady decline in hours worked in rich countries. However, if this flexibility is not forthcoming, both the French economy and the socialist government will pay a heavy price.