France resigned to flexible labour laws

The French unemployment rate ended last year at its highest level since 1999, underscoring the urgency of President Francois Hollande's task as he pushes for an overhaul of labour laws intended to encourage new hiring.

The jobless rate rose to 10.6 per cent in the December quarter, up 0.4 percentage points, the statistics agency INSEE said, as gross domestic product shrank 0.3 per cent amid government austerity measures. Almost 26 per cent of young people were classified as jobless, INSEE said.

The answer, the government hopes, lies in a "flexicurity" agreement signed on January 11 by employers and unions that would give companies more freedom to hire and fire. On Wednesday, Prime Minister Jean-Marc Ayrault's cabinet endorsed the deal and said it would present it to parliament for approval this autumn.

"This is a win-win deal for businesses that get into trouble, that have to reorganise," Mr Ayrault said, adding that the accord gives companies a tool other than lay-offs for addressing their problems.

The agreement, which draws on ideas pioneered in Denmark, would probably not have been possible a generation ago.

But several years of crisis and economic stagnation have led to an acknowledgement across most of the political spectrum that relatively high labour costs are making it harder for French workers to compete when jobs can easily be outsourced to low-wage countries.

The January 11 proposal would allow companies facing problems to negotiate with unions to cut working hours and wages for up to two years, reducing the incentive to lay-off employees. It would also make it easier for employees to be reassigned and would cap the amount that laid-off workers could be awarded by labour courts.

In exchange, employers would have to pay more of the healthcare costs for about 3.5 million lower-wage workers. Companies would be discouraged from short-term hiring by a payroll tax surcharge, graduated downward as the term of contracts increased. Workers would gain seats on the boards of major enterprises. And those who were laid off would not lose their accumulated unemployment benefits as soon as they returned to work.