France offers to pick up tab for young hires

The French government wants companies to hire young people so much that it's offering to pick up the tab.

The new Socialist president, Francois Hollande, told his Cabinet Wednesday that he wants to wage a war on unemployment and unveiled a plan for the government to pay most of the salaries of tens of thousands of young people hired next year.

Unemployment in France is 10 percent, but nearly 23 percent for those under the age of 25. That's an imbalance that many European countries are struggling with: In Spain, youth unemployment is over 52 percent; it's 34 percent in Italy.

European employers are especially reluctant to hire young people because restrictive labor laws make it hard for companies to lay off employees. What's more, in France, young people are typically required to do a series of often unpaid internships before landing a full-time job or can only manage to get short-term contracts for years on end.

But few countries are approaching the problem in the way that France is. Italy and Spain have proposed modest tax breaks for companies that hire people just entering the workforce but have focused more on fundamental reforms of the labor market that they hope will address the root causes.

Under France's new plan, companies that hire a person between 16 and 25 for at least a year will only have to pay as little as 25 percent of the salary. The government hopes to create 100,000 of these "contracts for the future" next year and another 50,000 in 2014. It has promised to continue paying its share of the employee's salary for three years.

The government will give preference to young people hired from poor urban or rural areas that have been hit hardest by rising unemployment. Certain sectors will also be favored, such as medicine and digital or green technology.

"We are waging a battle for jobs," Hollande told Cabinet ministers, according to government spokeswoman Najat Vallaud-Belkacem. "It's the No. 1 challenge of our mandate."

Some economists were skeptical of the approach.

"Making the structures of the economy more competitive and better performing is what really has to drive the thinking (in countries such as Spain, Italy and Greece)," said Nicolas Veron, an economist affiliated with the Brussels-based think tank Bruegel and the Peterson Institute in Washington. "It's not about targeted programs; it's about the structure of the (labor) market."

Whereas countries like Spain and Italy have recently passed wide-ranging labor market reforms to regain waning investor confidence in their economies, France has so far been able to put off those kinds of tough decisions. Investor confidence in France has remained relatively strong in part because of the sheer size of the economy — it is the eurozone's second-largest — and also the fact that its neighbors are worse off. But experts warn France will eventually also have to face the need to reform its economy.

The proposal needs to make its way through Parliament, but Hollande's Socialist Party has a solid majority there and the issue was a major campaign promise.

Hollande has staked his credibility on driving down unemployment and encouraging growth, all while meeting strict budget deficit targets. It's unclear whether he can manage all three — especially since the economy's fate is largely tied up with Europe's wider debt crisis and the well-being of its neighbors.

An entrepreneur's association immediately panned the idea.

"The jobs for the future are only a Band-Aid, if a necessary Band-Aid, in the face of a government that every day shows itself more incapable of overcoming the difficulties our country is confronted with," said Guillaume Cairou, president of the Club of Entrepreneurs and CEO of strategy consultancy DIDAXIS. "How can they not see that this cost is extremely high for the government, even while we should be reducing our deficit?"

The government estimates that the program will cost €2.3 billion ($2.9 billion) next year; it did not detail costs for the following years.


Lori Hinnant in Paris, Ciaran Giles in Madrid and Frances D'Emilio in Rome contributed to this report.