PARIS — French labor unions and business leaders appeared close to striking a deal Friday to make it easier to hire and fire employees in France’s notoriously rigid labor market. An accord would tame some of the most confounding rules in the 3,200-page labor code, as the country tries to increase its competitiveness and curb unemployment.
After weeks of sparring among the five major labor unions and the main employers’ lobby, both sides were edging toward a breakthrough that could pave the way for a series of changes that President François Hollande has said are needed to burnish France’s international allure as a place to do business.
Those ambitions were clouded recently by a series of high-profile episodes, including a recent government threat to nationalize an ArcelorMittal plant in northeastern France to preserve jobs. There was also the audacious decision during the past week by the French actor Gérard Depardieu to take Russian citizenship to escape a proposed 75 percent marginal tax rate on incomes of more than €1 million, or €1.3 million.
The labor measures expected to be cemented in the accord still being worked out late Friday would help address what Louis Gallois, Mr. Hollande’s investment commissioner, has dubbed a “two-speed” labor market in France. Under that system, employees on long-term contracts enjoy extensive, costly job protections and benefits, while temporary workers, whose ranks have surged to one-third of the French labor force, have minimal job security and relatively few benefits.
The changes under discussion would include giving employers more flexibility to reduce working hours in times of economic distress without incurring union strikes. High levels of compensation that courts can award to laid-off workers would be trimmed, and the five-year period that ex-employees now have to contest layoffs would be reduced.
In November, the government introduced a tax credit for companies, potentially worth a total of €20 billion, aimed at easing high employment costs.
In exchange, business negotiators on Friday agreed, as a concession to unions, to pay higher taxes for short-term work contracts. Two unions objected that the offer was not enough, a hitch that could still scuttle the talks. But if approved, that move would expand government coffers meant to support the unemployed, while also nudging employers toward favoring long-term contracts. Employers would also pay somewhat higher contributions for private health insurance.
But whether any of the changes, even if nailed down in a binding agreement, will come fast enough to fix France’s problems is an open question. Some economists now say that France could become the next sick man of Europe if it does not improve the environment for investment and hiring.
“Given the gap we still have between the level of labor market regulation in France and in countries like the United States, Britain and Ireland, it is very clear that when observers look at the outcome, they will say it’s a step in the right direction, but not enough,” said Dominique Barbet, the European economist for BNP Paribas in Paris.
“But we also need to keep in mind that in France, if you want to make reforms, you have to go through small steps first,” he said. “You can’t try to change the system overnight. That usually results in mass protests in the streets.”
Mr. Hollande’s government is expected to sign off on the deal. He has said it will help him keep a promise of reducing unemployment, now at a 13-year high of 10.7 percent, by the end of 2013. Youth unemployment is now around 25 percent.
Mr. Hollande sought the accord after Mr. Gallois issued a stark assessment of the French economy in November, saying the country needed a “competitiveness shock” that would require politicians to curb the “cult of regulation” that the Mr. Gallois said was choking business.
Under current labor rules, many entrepreneurs in France hesitate to hire large numbers of workers. Some employers even resort to operating several companies with no more than 49 employees each, instead of running larger ones that employ hundreds.
That is because after the 50th person is hired, a stack of new regulations come into play, including lengthy firing procedures even for underperforming employees, and requirements for numerous union representatives.
Temporary contracts fall on the other end of the scale: they are often lower-paid and offer far fewer protections, something that has alarmed French labor unions. More than 80 percent of new contracts now issued in France are short term, a trend that has grown steadily as employers turn to them to escape the costly rules protecting permanent workers.
Mr. Gallois’s report said that unless France relaxed its labor rules, the country would continue on an industrial decline that had destroyed more than 750,000 jobs in a decade and helped shrink France’s share of exports to the European Union to 9.3 percent from 12.7 percent. The report also called for cuts to a variety of business taxes used to pay for government and France’s expensive social safety net.
The International Monetary Fund in December warned that France needed to lift competitiveness or risk rising unemployment. Because of continued impediments in the functioning of labor and product markets, the fund added, French companies were earning lower profit margins than in other European countries, in turn affecting the ability of enterprises to invest and innovate.
While the impact of such changes will take time, France has already taken a series of steps that could help it skirt the worst in coming years. A fiscal consolidation begun in 2010 is continuing, in which tax increases and spending cuts are being applied to bring the overall budget deficit down to 3 percent of gross domestic product in 2013, from an estimated 4.5 percent in 2012.
The economy is expected to grow about 0.4 percent in 2013, according to the I.M.F.
“What’s most important is that France get an economic recovery,” said Mr. Barbet, of BNP Paribas. “If we don’t have that, people won’t hire no matter what the new labor rules are.”
France Near Deal to Simplify Labor Regulations
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France Near Deal to Simplify Labor Regulations
