WHEN GERHARD SCHRöDER launched a series of German labour-market reforms in 2003, his country’s unemployment rate stood at just under 10%. This was also the rate inherited by Emmanuel Macron, who signed his own labour-market reform into law in September 2017. The French president’s version is more modest than the Schröder package, not least because the bits already enacted touch only the labour code and not yet the unemployment-benefit and vocational-training systems. But Mr Macron’s hopes to curb unemployment are no less ambitious. A year on, has the French reform had any effect?
At first glance, not much. The number of jobseekers edged up again slightly in the third quarter, by 0.5%, after a tiny rise in the second quarter, according to Pôle Emploi, the unemployment agency. There has been a steep increase, of 8%, in the number of people out of work for between one and two years. France’s overall unemployment rate in the second quarter stood at 9.1%, still well above the 7% he has promised to achieve by 2022.
Part of this is unsurprising. Labour reforms obviously take time to feed through into durable job creation. It was not until 2008, five years after its reforms, that Germany’s unemployment rate fell to 7%, and a further four years before it reached 5%, thanks in part to the creation of low-wage “mini-jobs”, which the French government does not seek to copy. “France will not be a country of low-cost work,” declared Muriel Pénicaud, the labour minister, last year.
Moreover, the second element of Mr Macron’s three-part labour reform—a revamp of vocational-training schemes on which France spends €32bn ($37bn, or 1.4% of GDP) a year—has only just gone into effect. This is designed to improve results by handing choice to employees in the form of training credits they can choose how to spend. A further €15bn over five years is going into training for the unemployed. It will take much longer for such measures to improve skills and job prospects.
The third and final part—a reform of social protection—will be unveiled only next year. Whereas Mr Schröder began with benefit reform, Mr Macron has left this until last. During his campaign, he promised to extend unemployment benefit to all (currently it depends on accumulated insurance rights), in order to adapt the French welfare state to a world in which work is less regular and people change jobs more often. Such ambitions may now be scaled back, because of their cost. Plans to clamp down on those who refuse job offers remain on the table.
Nonetheless there are some indications that French employers are starting to respond to the labour reforms. One seems to be an improvement in the quality of jobs created. For example, in the third quarter of 2018 the number of firms reporting an intention to hire on permanent (rather than temporary) contracts was 10% higher than a year earlier, according to Acoss, the social-security agency. Figures also show a rise in the overall share of those aged 15-64 employed on permanent contracts over the past three quarters and a recent drop in those on short-term contracts (see chart).
Another measure is how many cases for unfair dismissal end up in the labour courts. French courts have until recently been free to award damages without limit, and these varied wildly. Mr Macron’s labour law capped such awards, thereby minimising the financial risk of lay-offs (and so of hiring) to firms. In 2017 the number of such cases going to court fell by 15% on the previous year. One director of a services firm, which employs 40 people in its call centre, says that he usually hires around five people each month, and used to put them all on short-term contracts. Now at least two of those will be permanent job offers. “It’s better to have motivated employees, but in the past it was a risk,” he says. “Now I feel it’s a gamble I can take.”
Such trends are new, and yet to be confirmed. Much will depend on the economic outlook beyond France. But, says Ludovic Subran, chief economist at Euler Hermes, a French credit insurer, “the trajectory is right, and we should see results by 2020.” Mr Macron has urged people to be patient. The trouble, of course, is that politicians who introduce reforms are often not those who benefit from them. Just as his last labour reforms came into force, in 2005, Mr Schröder lost his job, to Angela Merkel.