European Economists Say Labor Reform a Necessity

PARIS – In much of Europe, the idea that a company can dismiss workers just because profits are sagging is unacceptable, an affront to modern values.

Yet economists say that even if the American model — under which layoffs are common — would never fly here, reforms to Europe's labor laws are crucial to the continent's economic health. The battle in France over a new labor law is just the loudest and latest sign that the European system is ailing.

The question of how to cure it is prompting soul-searching and underscoring divisions across the continent. At stake is Europe's vision of itself: Is it the world's epicenter of enlightened ideas, or an economic heavyweight? Can it be both?

"Nobody has a magic recipe," said Marco Manacorda of the London School of Economics. "We need to ask hard questions."

The European Union has had little luck stepping into the fray. One of the most divisive EU debates of late was over a law that would have allowed companies to operate under the labor regulations of their home country while doing business in another EU country. It was struck down last month.

In the United States and Britain, young people frequently jump from job to job. To dismiss an employee, companies can often just say, "You're fired."

But in France, workers who land a coveted permanent contract can plan to stay at their jobs until retirement. To fire most employees, companies not only have to give at least three months notice, pay fines to the state and up to three years of severance — they also have to convince a judge that the dismissal is justified, something they don't always manage to do.

The French government says these rules are crippling and at fault for persistent unemployment, and devised a law in January that eases them. The most prickly part of the law, the so-called first job contract, allows employers to fire workers under age 26 without reason during the first two years on the job.

Unions and students were stunned, and are staging mass protests and strikes in a bid to bury the law. To them, job security is one of democracy's achievements, and infringing on it is a step backward.

France shouldn't aspire to an economic boom like in China, "where there is not much unemployment but the working conditions are not acceptable," said the head of the country's main student organization, Bruno Juillard.

Meanwhile, many French workers and employers are seeking profits elsewhere. Registering offshore has become a popular way for French companies to avoid labor restrictions and high taxes.

Francois Flandin is the only one of his circle of business school friends still in France. The others have moved to London, Singapore or New York, where they say it's easier to land a job.

"The problem is that soon in France we won't work at all," the 32-year-old investment banker said, referring to generous vacation benefits and the 35-hour workweek.

Some French economists have suggested abolishing the 35-hour rule, citing studies that show it has done little to create jobs, as it was meant to.

Part of Europe's challenge is getting its growing numbers of immigrants into the work force. The French jobs law is aimed partly at immigrant youth, who face unemployment rates as high as 50 percent.

Manacorda says the key is to reform pension benefits, instead of introducing measures that punish young people.

Already, without a permanent job in France, it's nearly impossible to rent an apartment, buy a house or earn a bank loan. As a result, many French youth live with their parents throughout their 20s, drifting among unpaid internships, temporary jobs and the unemployment line.

While France's labor protests have been the most vigorous, other Europeans are also antsy about erosions of job security.

In Britain, public sector workers shut down schools, council offices and other services Tuesday in a one-day strike over a pension dispute. And public workers in southwestern Germany have been striking for eight weeks over an attempt to extend working hours.

Job protections have been a major campaign issue ahead of Italian elections next month. More than half of Italian college students consider a job-for-life either fundamental or very important, according to a study released Wednesday.

Hughes Challan Belval, financial director of a French computer firm, predicted that France will streamline its labor laws over the next two or three years out of necessity — despite the vocal opposition. Today's crisis, he said, "is a veritable psychological problem."