by Pater Tenebrarum
Mr. 'Growth instead of Austerity' Hollande strikes again – Mish has already
written about the latest policy blunder to emerge from France last week, but we
would like to add a few words.
Apparently the new French government believes that the proper method of
combating the recent 13 year high in unemployment is to make it 'as expensive
as possible for businesses to fire people'. Seriously. Evidently the economic
illiteracy runs really deep at the highest echelons of France's political
leadership – the idea was proposed by the minister of labor. How did Fred
Sheehan put it? 'They think they can order nature around'.
Such measures will guarantee that institutionalized unemployment in France
will increase even further – and as Mish correctly remarks, the mere threat of
such legislation should lead to a wave of layoffs just before it comes into
effect. Producers that can afford to move their production facilities to more
business-friendly climes will do so at the earliest opportunity. The ranks of
small business owners are likely to thin out further and fewer new businesses
will be started. Many should probably begin to study the bankruptcy code, just
in case.
We have already discussed France's 3,200 pages thick bizarre labor code in 'Vacations from Reality'. It is one of the most restrictive and complex pieces of labor legislation on the planet. The whole thing should actually be thrown into the next garbage can. Here is a reminder of some of the absurdities it contains:
““Here’s a curious fact
about the French economy: The country has 2.4 times as many companies with 49
employees as with 50. What difference does one employee make? Plenty, according
to the French labor code. Once a company has at least 50 employees
inside France, management must create three worker councils, introduce profit
sharing, and submit restructuring plans to the councils if the company decides
to fire workers for economic reasons.
[…] Companies say
the biggest obstacle to hiring is the 102-year-old Code du Travail, a
3,200-page rule book that dictates everything from job classifications to the
ability to fire workers. Many of these rules kick in after a company’s French
payroll creeps beyond 49.
Tired of delays in getting
orders filled, Pierrick Haan, CEO of Dupont Medical (not to be confused with
chemical company DuPont (DD)), decided last year to return production of some
wheelchairs and medical equipment to France. The 150-year-old company,
based in Frouard in eastern France, created 20 jobs making custom devices at a
French plant—and will stop there. Faced with France’s stifling labor code, Haan
probably will send any additional production of standard equipment to what he
calls “Near France”—Tunisia, Bulgaria, or Romania. “The cost of
labor isn’t the main problem, it’s the rigidities,” Haan says. “If you make a
mistake in your hiring plans, you can’t correct it.” (emphasis added)
In addition to these latest grandiose ideas guaranteed to make unemployment
worse, industry minister Montebourg (which sounds suspiciously like
'mountebank' - probably not a coincidence) wants to legislate a
prohibition against plant closures. Moreover, more funds are going to be spent
on 'saving' government-financed jobs, i.e., a Keynesian ditch-digging exercise
is about to be unleashed.
It is difficult to say how much of this is empty electioneering rhetoric
given the nearness of parliamentary elections, but if that is what it is, then
the French fully deserve what they are about to get. If voters let themselves
be persuaded by such quackery they can only blame themselves. Of course one
must always keep in mind that obviously not all voters are d'accord with
this nonsense.
“France's
new Socialist government is planning to ramp up the cost of laying off workers
for companies in the coming months, its labour minister said on Thursday after
data showed the jobless rate hit the highest level this century at 10 percent.
President Francois Hollande
rode to power in a presidential runoff last month on a promise to tackle
soaring unemployment, which has reached the highest level since 1999.
Polls regularly show
unemployment ranking among the French's top concerns, adding pressure on Hollande
as his Socialist Party seeks a majority in parliament in a two-round
legislative election on June 10 and 17.
The push to
make firing more difficult in France, where making layoffs is already tightly
regulated and often costly for employers, contrasts with moves under way in
other euro zone countries such as Italy and Spain to make job cuts easier.
With the
economy stalling, Labour Minister Michel Sapin said urgent measures were needed
against unemployment and that he aimed to put forward legislation after the
summer break.
"The
main idea is to make layoffs so expensive for companies that it's not worth
it," Sapin said in an interview with France Info radio.
"It's
not a question of sanctions, but workers have to have compensation at the right
level," he said.
Sapin, a former finance
minister and long-time friend of Hollande, said the government could not stand
by idly as some companies cut workers just to improve profitability and boost
their dividends to shareholders.
Industry
Minister Arnaud Montebourg is also planning legislation that would force
companies to sell plants they want to get rid of at market prices to avoid
closures and job losses.
The government and unions are
bracing for a wave of layoffs after the legislative election, fearing companies
have put off job cuts until after the election period. […]
Sapin said
in an interview with Les Echos business daily that the budget for state-aided
jobs needed to be raised, or else 112,000 jobs on such contracts could be put
at risk in the second half of the year.
"That would be extremely
harmful at a time when all resources need to be mobilised against
unemployment," he said, adding that the state-run jobs agency also needed
more funds.
However,
Hollande's government is facing growing pressure from the European Commission
and ratings agencies to cut spending in order to meet public deficit targets as
promised.
With the
legislative election looming, the government is being careful not to spell out
how it will keep its deficit-reduction plans on track until an independent
audit of the public finances is handed in after the race. (emphasis added)
Someone should perhaps ask them to spell out how precisely they do intend
to hew to their deficit targets. To anyone still holding French government
bonds we would recommend a moment of quiet introspection at this juncture.
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