French Unions, Hollande Brace For Huge Wave Of Layoffs

In the wake of France's presidential election, the victor, socialist Francois Hollande, has no time to celebrate in the face of a jobs crisis that will immediately test his leadership skills and perhaps determine if Hollande's promises to restore the battered economy will be fulfilled.

French labor unions fear that dozens of private corporations are on the brink of enacting tens of thousands of layoffs in response to a gaping national trade deficit (a record high of €70 billion last year) and a fragile economic climate. The unemployment rate, already nearing 10 percent -- a 13-year high -- will keep climbing in the event companies do indeed pull the trigger on job cuts.

The Organisation for Economic Cooperation and Development forecasts that French GDP will manage only a 0.6 percent expansion this year, after 1.3 percent growth in 2011 -- hardly an ideal backdrop for the plentiful creation of new jobs.

Bernard Thibault, the secretary of the communist-backed Confédération Générale du Travail, one of France's largest unions, warned at least 45,000 jobs (and maybe as many as 90,000) will be jettisoned by some 46 companies.

Decisions need to be taken on certain situations urgently, Thibault told reporters after meeting with newly elected Prime Minister Jean-Marc Ayrault.

Plus ça Change

Hollande, who gained entry into the élysée Palace largely on the premise that he would scale back the austerity cuts of his predecessor, Nicolas Sarkozy, and focus on job-creation and economic growth, will be placed in an embarrassing and uncomfortable position should thousands of his fellow Frenchmen and women land on the unemployment line during his first few months in office.

Reportedly, Sarkozy convinced France's titans of industry to postpone such mass layoffs until after the election, in order to give the incumbent a better chance of re-election. Now that Sarkozy is himself jobless and Hollande is openly hostile to big business, corporate executives will likely do as they please.

A fair number of job-cut plans have been put on hold because of the election and will now be announced, Nicolas Bouzou, a French economist at think tank Asteres, told the Wall Street Journal. Although some companies will probably wait until after the June legislative elections.

Automaker PSA Peugeot-Citroën, banks Société Générale and BNP Paribas, airline Air France-KLM and retailer Carrefour are among the prominent French companies that are likely to announce significant job cuts in the coming weeks and months.

All of the aforementioned firms, and others, are struggling with rising costs, tepid consumer spending, falling revenues and the poisonous spread of the euro zone debt crisis.

But Hollande is also under pressure from the European Commission to abide by austerity cuts to reduce France's budget deficit to the E.U.-mandated 3 percent of GDP level from the current 4.2 percent figure.

Hollande cannot stop layoffs, declared Douglas Yates, assistant professor of political science at the American University of Paris and professor at the American Graduate School in Paris.

But he can try to meet with the heads of the corporations and unions and negotiate the terms of departure, perhaps even arranging for reduced time, German-style, rather than total layoffs.

Yates indicated that no one knows when the next wave of layoffs will occur but added that there has already been a steady decomposition in the French industrial sector, with many factory jobs being shipped overseas to places where labor costs are cheaper -- as the U.S. has similarly witnessed.

While the 10 percent jobless rate is not unprecedented for France (the rate was higher in the mid-1990s), Yates cautions that, due to structural issues in the aging French economy -- i.e., outdated labor rules, old factories, etc. -- without some kind of financial stimulus, unemployment will likely remain high.

James Shields, professor of French politics and modern history at Aston University in Birmingham, England, noted that France has already been hemorrhaging jobs on a large scale for a while.

Indeed, under Sarkozy's five-year tenure in power, 350,000 factory/manufacturing jobs were lost, while unemployment overall in France increased by almost a million in the same period.

Hollande inherits the same set of labor market problems with which Sarkozy wrestled -- industrial lay-offs, shutdowns and outsourcing, Shields said.

Sarkozy huffed and puffed at the start of his presidency in 2007 about protecting French jobs, opposing foreign takeovers of French companies and deterring factory relocations by penalizing companies moving production out of France. But the power of a president, even one as powerful as France's, to stand in the way of economic force majeure is very, very limited.

Minimum Wage War

Aside from demanding that Hollande prevent huge layoffs, unions also want him to raise the minimum wage, from €9.22 ($11.55) per hour pre-tax, by 20 percent.

We would like an increase [in] the minimum wage to show the will to help the lowest-paid employees, said François Chérèque, the general-secretary of the French Democratic Confederation of Labour, France's largest union by membership.

During his campaign, Hollande indeed vowed to raise the minimum wage, sparking concern from overburdened corporations that any increase might only lead to more job losses.

[Raising the minimum wage] solves nothing linked to workers' purchasing power, Jean-François Roubaud, president of the Confédération générale des petites et moyennes entreprises, the French federation of small and midsize businesses, told Euronews. The real solution is to see how we can reduce overall labor costs and [have] the net wages of all employees increased.

Shields recalled that Hollande promised to boost the minimum wage in order to attract votes that might have gone to far-left challenger Jean-Luc Mélenchon.

Hollande, who had earlier resolved not to promise any pay raises, found himself having to compete for left-wing support by promising to 'nudge' the minimum wage up, without saying by how much, Shields stated. This would be the first increase in the minimum wage [in real terms] in six years, and Hollande's concern is to ensure that companies, especially those that are small and medium-size, are not burdened with unaffordable wage bills as a result. While the unions are pressing hard for a significant rise, business leaders are nervous of raising pay at a time when French companies need to regain competitiveness.

In addition, Hollande's election manifesto included bringing the retirement age back to 60 from the Sarkozy-mandated 62.

Hollande also promised to create 60,000 jobs for teachers, raise the tax on those earning over a million euros to a rate of 75 percent and place a limit on the salaries of executives at state-controlled companies to a maximum of 20-times that of their firms' lowest-paid employee. In some cases, the bosses of such companies could potentially see their pay cut by as much as 68 percent.

Sacré Who?

I believe in the patriotism of the company leaders, Prime Minister Ayrault told L'Express magazine.

I am sure they understand that the financial crisis means the political and financial elites must lead by example. The French people made their decision when they went to the polls on May 6, and business leaders respect universal suffrage.

In an expression of solidarity, Hollande and his cabinet ministers have themselves cut their own salaries by 30 percent.

During his presidential campaign, Hollande also promised to create 150,000 state-subsidized 'generation contracts' involving the reduction of labor costs for companies taking on young people as part of a scheme based on the retention of older workers who would help train the new starts.

This proposal has the merit of addressing two particularly vulnerable groups within the labor market: the young and so-called 'seniors' or older workers, Shields said.

The new president has also promised to target investment at small and medium-size business to help stimulate growth within the French economy.

He wants to see unions gain more representation on company boards and more direct input to decisions on staffing, Shields added.

Thus, Hollande may have promised far more than he can deliver.

On various fronts, the pressure is intensifying on Hollande, who not only faces crucial parliamentary elections this month, but also must attend a summit on labor issues between diametrically opposed camps of business leaders and unions in July. If his socialists cannot win enough seats in parliament, his program of creating new jobs will be in jeopardy. Union members who voted en masse for Hollande are counting on him to block the mass sackings.

Striking Out

But what can the unions in France really do to prevent mass firings?

As in the United States and many other western nations, the power of France's labor unions has been greatly eroded in recent decades.

Some unions are stronger than others, Yates noted. Certain public sector unions are the strongest and have the best chance of getting a raise [in the minimum wage and salaries]. But overall, the climate is not good for organized labor. Besides, they are the political partners of the socialists and, therefore, have difficulties in driving a hard bargain.

French trade unions punch above their weight and wield more political power than their membership would seem to warrant, says Shields, but there are limits.

French unions may be renowned for their readiness to take to the streets and hold governments to ransom, but the French trade union movement is one of the weakest in Europe, he added.

In fact, among the E.U.'s largest countries -- Italy, the UK, Germany and France -- the French actually have the lowest percentage of unionized workers, at only 9 percent (Italy is at 30 percent).

According to the Federation of European Employers, on the whole only about 20 percent of E.U. workers now belong to unions, down from 26.3 percent just a few years ago.

Also, as union power in France is concentrated in the public sector, notably energy and transport, private sector membership runs as low as 5 percent, Shields noted.

Although membership in French unions has rapidly declined, they still have some tricks up their sleeves to make them effective, including, of course, the right to strike.

What French unions do benefit from, historically at least, is widespread public solidarity allied to well-entrenched consultative roles within the workplace, Shields indicated.

Indeed, the massive wildcat strike following the student protests in May 1968 (which involved an astounding 11-million workers) brought the economy to a standstill and almost brought down the government of Charles de Gaulle.

Politicians respond to unions not because they represent large numbers of workers or because they can speak on their behalf, but because they can strike, Yates noted.

But the unions' power to bring France to a halt has been diminished by a Sarkozy reform that obliges minimum service on public transport during strikes, among other measures.

All Together Now

Laura Gonzalez, assistant professor of finance and business economics at Fordham University in New York, commented that strikes are the last resort of unionized employees without any alternatives.

Unlike American workers, Europeans not only worry about relocating (selling the house, changing schools, etc.), but also about being able to find any job at all without having to cross borders and having to deal with different languages, cultures, bureaucracy, etc., she said.

Otherwise, many workers, qualified or not, will be confined to their countries, such as Greece, where there is practically no job creation.

Gonzalez adds that France, and Europe in general, needs a comprehensive economic reform program, something on the magnitude of the famous Marshall Plan after World War II.

The private sector [in Europe] will fire [workers] to stay competitive, she said. Thus, the public sector needs to create jobs and incentivize the private sector to invest and create jobs for educated younger people.

But, more than that, European governments and corporations need to revise benefits, pensions and the conditions for retirement.

The only thing that will keep society from exploding will be the requirement that institutional and political leaders also live under austerity and provide complete transparency, she added.

Europe's Main Street will not accept austerity without growth and without the oversight of the European Wall Street and the political institutions.

Looking ahead, the summit between government figures, unions and business leaders will greatly determine how much power and influence labor unions can wield in France's economic policies.