French Labor Liberation Day
French voters this spring gave themselves their best shot in a generation at reviving their moribund economy, and President Emmanuel Macron is now taking advantage of the opportunity. The final draft of the labor-market reforms he unveiled Thursday could remake the eurozone’s second-largest economy.
Few areas of French labor law remain untouched. Most important, Mr. Macron will limit the severance payouts courts can mandate for fired workers. He will free small companies with nonunion workers from the straightjacket of national collective-bargaining agreements covering working hours, overtime pay, vacation benefits and the like. Companies will have more scope to negotiate labor deals at the firm level rather than being forced to abide by national agreements.
The severance overhaul will go a long way toward inducing businesses to hire more workers. Small- and medium-size French companies report pervasive fear of expanding their workforce lest they be stuck with problem employees or face ruinous expenses to lay off workers if economic conditions change.
These restrictions help explain why French unemployment is still 9.5% even at its five-year low. That’s double the rate in Germany, and French unemployment has become a social crisis, especially for young people frozen out of the job market. The jobless rate for French between age 15 and 24 is 25%—for those who haven’t moved to London or the U.S.
Mr. Macron speaks often of France’s need to transform itself into a “start-up nation,” and what entrepreneurial companies need as much as capital is flexibility. His labor reforms would give them new freedom to innovate and are crucial to the larger cultural shift in France’s attitude to entrepreneurship and risk-taking that Mr. Macron wants to promote.
None of these reforms are new ideas. Previous governments recognized the need for them, and Mr. Macron was hired by his predecessor, François Hollande, in a failed bid to pull off similar overhauls. But the politics are different now, and this is Mr. Macron’s main achievement. He won the May election and then he led his party to a majority in the National Assembly in June on these reforms.
This mandate helped Mr. Macron wrest grudging acquiescence from some of France’s biggest labor unions after a monthslong negotiation in which he appears not to have made major concessions. Several union leaders said Thursday they will not join street protests planned by more radical unions.
France isn’t becoming a laissez-faire paradise. Even if Mr. Macron’s labor overhaul takes effect, the French workplace will still be considerably more regulated than America’s. Mr. Macron also promises tax reforms, including rate cuts for businesses and individuals, and a pension overhaul. Both face considerable political headwinds. But those looming battles are all the more reason for Mr. Macron to go big and early on his labor promises
The labor reform by itself would be transformative for France’s economy. Mr. Macron’s political rise has been a reminder that French torpor is a choice. His policy ambition is a sign that France may finally choose something else.
France is the eurozone’s second-largest economy. An earlier version of this article incorrectly stated it is Europe’s second-largest economy.
Appeared in the September 2, 2017, print edition.