Costly leisure of the French short week

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Why the French economy has expanded at a slower rate than the US economy over the past decade is, for the most part, simply explained. The French have not worked as hard as the Americans.

Or, in the more sophisticated language of Michel Camdessus, the French former head of the International Monetary Fund, France is suffering from a "work deficit".

Although private sector workers in France are well educated, highly productive and fairly dedicated (the number of strike days lost is lower than in most industrialised countries), they work on average 15 per cent fewer hours each year than their American counterparts. How can France correct this work deficit and bring down its high unemployment rate? Perhaps more importantly, do its politicians and voters really want to try?

The answers to those questions will largely determine whether the eurozone's second biggest economy can regain its dynamism and, more broadly, whether the European Commission's desire to revitalise Europe's economy stands much chance of success. If France, and Europe, really can reform, Europe's economies could enjoy a productivity bounce that closed the gap with the US.

For 30 years, workers in rich industrialised countries have been cutting their working hours and enjoying more leisure time. But this reduction has been particularly sharp in France - chiefly because, since the mid-1990s, the government has been pensioning state employees off early with the aim of creating jobs. Yet France's unemployment rate has remained stubbornly high at around 10 per cent, blighting millions of people's lives and squandering the country's labour potential.

Martine Durand, a labour market specialist at the Organisation for Economic Co-operation and Development, says that European economies, for almost five decades after the second world war, were catching up with the US in terms of gross domestic product per head. "But around 1993-95 you can see a divergence of GDP per capita. Why this is so is partly because of the impact of new technology on productivity but the bulk of the explanation is the deficit of labour input."

Last week, France's centre-right government claimed a symbolic victory when the lower house of parliament amended the law that enshrines France's 35-hour working week. Under the mantra of "earn more by working more", the government promised to give private-sector workers greater freedom to choose whether to work longer hours, if they reached a collective agreement with their employers.

Since coming to power in 2002, the centre-right government has progressively increased the state-imposed ceiling on overtime from 130 hours a year to 220 hours and provided more flexibility for smaller businesses. But these relatively modest moves have sparked fierce parliamentary opposition from the Socialist party and mass protests across France from some trades unions. "It's a trap," said one member of the CGT union, with a red campaign sticker plastered to his forehead, on a protest march in Paris this month. "The politicians of the right want to demolish the achievements of the left and turn the country back 15 years."

The 35-hour law, which was introduced in stages by a Socialist government between 1998 and 2000, must rank as one of the boldest (or most foolhardy) labour market experiments of modern times. But there is no doubt that it has changed the mentality of a nation. Even rightwing President Jacques Chirac has accepted that the 35-hour week is a "social right" that cannot now be scrapped.

The primary aim of the law was to reduce unemployment, based on the theory that by encouraging older workers to limit their work hours, vacancies would be created for the unemployed young. Work could be "shared" among the whole population for the good of all. But the law's backers also intended to change France's work-life balance, particularly for the benefit of women. After all, they argued, a society's contentment cannot just be measured in a GDP index.

Martine Aubry, the Socialist minister who introduced the law, remains un- repentant about the workplace revolution she helped bring about. "If we are on the left, it is because we hope that every man and woman finds in their work not only a source of income but also a means of creating social value and that they can clear time for leisure and their families," she said before the latest parliamentary debate.

Many French people have certainly appreciated the changes. A recent poll in the weekly Journal du Dimanche showed that 77 per cent of respondents liked their new lifestyles and did not want to work longer hours. Many also believe that by reducing their working hours they are doing their bit for social solidarity. But critics of the 35-hour week make three main charges:

First, they argue that the concept of "sharing" work is illusory. Since the 19th century, economists have described a "lump of labour fallacy": the delusion that there is a finite amount of work that can be divided among the population. Unless wages are cut, it is more expensive for a company to employ two part-time workers than one full-timer, because of additional overhead costs. Besides, the labour market is not a pie that can be redivided at the government's whim.

Independent economists estimate the 35-hour law may have helped create up to 300,000 jobs on a net basis since its introduction. But it is difficult to say for sure. France, like other European countries, was experiencing an economic upswing when the 35-hour law was introduced. Some companies took advantage of the introduction of the 35-hour week to negotiate more flexible working practices with their employees, essentially an unforseen by- product of the law. It is also impossible to tell how much investment - and economic growth - would have occurred in the absence of the law.

Second, the introduction of the 35-hour week has involved huge cost and complexity, imposing additional burdens on the state and individual companies. For many years, the French government has been been providing financial incentives to encourage older employees to retire early. It has also provided fiscal concessions to companies to ensure that the minimum salary did not drop when the 35-hour law was introduced.

In 98 per cent of cases, companies did not cut employees' salaries when they reduced their working hours from 39 to 35 - although some of these businesses have been able to regain part of their cost competitiveness by freezing wages since then.

One former government economist says: "The government has been spending money to try to persuade people not to work. But people have not been presented with the work/labour arbitrage in a true way. They are offered more leisure time with no sacrifice on the income side."

Third, the critics argue that there are better ways of tackling France's un- employment problem than imposing reduced working time. A string of French economic reports in recent years has suggested that unemployment could be more effectively tackled by going to the root of the problem: over-regulation.

A government-commissioned report by Francis Kramarz and Pierre Cahuc, labour economists, concluded last December that France could create hundreds of thousands of jobs by de- regulating protected markets. For example, many more service sector jobs could be created by loosening restrictions on opening hypermarkets and hotels. Thousands more could be created in many other sectors, from taxi services and hairdressing to accounting, if training requirements were simplified and more licences were issued.

The general thrust of this approach is shared by experts at the OECD. John Martin, director of the OECD's labour directorate, says: "There needs to be a series of reforms to labour and product markets in France to reduce the high structural unemployment rate significantly. Our view is that that is still the key problem and that the 35-hours [restriction] did little or nothing to change that. It was essentially a second-order issue."

If the real policy answers have been so glaring, why did French politicians shy away from them and opt for a policy that economic experience suggested would never fulfill its goals? After all, every other OECD country with a lower unemployment rate than France has a longer working week and a higher retirement age.

One answer has been suggested by Timothy Smith, author of France in Crisis, a damning critique of French public policy. He argues that the French welfare state has in effect been "captured" by privileged insiders who resist any attempts to sacrifice their privileges for the sake of outsiders, such as the unemployed, the young and the immigrant communities. The 35-hour week was a means of rewarding those insiders while pretending to help the outsiders.

Although the post-war French welfare state initially proved brilliantly successful in reducing poverty, protecting pensioners and building first-class public services, Mr Smith argues it now suffers from "solidaristic overstretch". The welfare state's current aim is to protect "yesterday's needy", who have become today's affluent, rather than assisting the present-day poor: more than 70 per cent of social spending goes to those aged 59 or over.

By one recent estimate, 57 per cent of the French adult population are either civil servants or related to a civil servant. This privileged class of fonctionnaires form the "new reactionaries" who resist meaningful reforms. So far, at least, public sector workers have been exempted from the government's latest changes to the 35-hour week.

Mr Smith argues that France can reform its welfare state by moving towards a more equitable Scandinavian system of redistribution. The choice is not, as some French politicians like to suggest, simply between French-style solidarity and the "jungle capitalism" of the Anglo-Saxon world.

Can a French politician ever deliver such a revolution? François Neukirch, president of Itras, a start-up software company, speaks for many French business people in arguing that there is only one hope on the scene: Nicolas Sarkozy, former finance minister.

"Sarkozy is the only person who has the courage to take the measures which would be good for France," says Mr Neukirch. "I think that he represents the only hope for real change. He has the charisma, the punch, and the courage to change things."

As the recently installed president of the ruling UMP party, Mr Sarkozy has already shown he is ready to weigh into the fight. He is distributing 1m leaflets arguing why the 35-hour week needs to be reformed. Mr Sarkozy's political bet appears to be that more French voters want to embrace reform than resist it.

But there are two years to go to before the next presidential election and it is not yet certain that Mr Sarkozy will stand, let alone win. Moreover, he is a high-risk politician making an inherently improbable bet. As the former government economist says: "You are essentially asking people in good jobs to sacrifice something for people at the margin."

That is hardly a proved recipe for winning votes.

A land where the weekend can start on Thursday

By Martin Arnold

THE BIG FAMILY COMPANY

Pierre Moustial, chief executive of Fournier Pharma, a family-owned pharmaceuticals producer, negotiated the introduction of the 35-hour week with unions at the company. “It was no picnic, I can tell you,” he says over lunch on the Champs Elysées in Paris.

Fournier had sales of €557m in 2003 and has more than 3,300 employees. Mr Moustial, a graduate of HEC business school and a former banker at Dresdner Bank, took over at the group two years ago. He supports changes to the 35-hour week. “The government aims to let people work more to earn more. I think it is difficult for anyone to be against that goal,” he says.

Mr Moustial says the biggest problem has been for France’s image. “It has done considerable damage to how we are viewed by foreign investors.”

The 35-hour week also imposes costs in terms of management time, though its overall impact on a business varies by sector, he notes. But he sees the debate over working hours as more a symptom than a cause of French economic woes, which Mr Moustial blames on the country’s adversarial history of labour relations.

“It is more a consequence of the conflictual system governing relations between employers and unions.”

THE TECHNOLOGY START-UP

B-process, a technology company making invoicing software, has 32 staff, one of whom is paid by the hour. When the 35-hour week was introduced, Sébastien de Maintenant, human resources director, was able to implement a transitional option open to small businesses. This gives staff just three days’ extra holiday a year instead of 10 or even 25 at most companies.

While this has reduced the cost of the measures, he says B-process has suffered in other ways. Recruiting staff is harder as the best talent is tempted to join bigger companies that offer more holiday.Jean-Baptiste Roux, managing director, points out another side-effect of the 35-hour week: the difficulty of doing business on Fridays.

“Friday has become a day of internal meetings for us,” says Mr Roux. “There is at least a 30 per cent chance a customer will not be in the office on Friday, which means we lose time.”

Arnaud Vincent, marketing director, says he joined B-process after leaving a big French industrial group where there was “very strong pressure” on managers not to take all their holiday.”To take all the days off was seen badly. We had almost 10 weeks’ holiday a year, if you took it all there was danger someone else would be in your seat when you got back.”

THE LOCAL SERVICE BUSINESS

As outspoken as any taxi driver, Aziz Senni, head of ATA, a minibus taxi operator, has plenty to say about France’s working hours regime. “The 35-hour week was supposed to create jobs and new businesses but that has not happened,” says the 28-year-old, who founded ATA in 2000 to provide low-cost collective transport in the Ile-de-France region around Paris.

He says the law has made life much more difficult for small businesses such as ATA, which has about €2m of annual revenues and 46 staff, mainly paid by the hour.”Who does the 35-hour week help? Only the middle managers at big groups who have the money to afford leisure time. It does not help the bosses at the top of the ladder or the small businesses and low-level workers at the bottom.”

Mr Senni says the law obliges him to turn down drivers’ requests to work longer hours. He also has difficulty finding people to work only two or three hours a week to fill gaps left by people being forced to take time off.

Alexandre Hebrew, ATA’s office manager, says: “Extra days off are not going to help you pay your tax bill at the end of the year.” Terzi D’Jamel, head of maintenance, adds: “The 35-hour week is not attractive in terms of salary. I would prefer to work longer and earn more.”

THE UNIONISED EMPLOYEE

From 10pm until at least 5am, Jean-Christophe Tirat mans the blackjack, roulette and poker tables at the Enghien-les-Bains casino on the outskirts of Paris. He then sleeps most days until about 2pm.

The 38-year-old croupier, a union representative at his casino, says the 35-hour week has improved his quality of life. “Having more rest and leisure time allows me to compensate for the strain on my body of working nights,” he says. “When you work nights like me, your biological clock is completely disrupted, so you get tired more quickly and it is medically shown that your life expectancy is reduced.”

Mr Tirat goes on: “Work is not there to make life completely unbearable: one should not dominate the other. That is why I support the 35-hour week.”

A 10-year veteran of the casino business, Mr Tirat has no doubt that his employer, the Barrière group, would want him to work longer if the law allowed it. For him, 35 hours are already too many. “I think we should go further, cutting it to 32 hours. That is the best way to reduce unemployment, but it will work only if there is a government obligation forcing companies to hire new staff.”

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