September 26, 2012 / 3:51 AM / 5 years ago

French minister sees Germany as model for labour reform

PARIS (Reuters) - France should copy Germany’s labour model to help its struggling companies regain a competitive edge, notably with more flexibility to cut wage costs during a slump, French Industry Ministry Arnaud Montebourg said on Wednesday.

France's Minister for Industrial Recovery Arnaud Montebourg speaks during the questions to the government session at the National Assembly in Paris September 11, 2012. REUTERS/Benoit Tessier

With firms from carmaker PSA Peugeot (PEUP.PA) to retailer Carrefour (CARR.PA) planning mass layoffs, Montebourg is under pressure to back reforms that will slow the pace of job losses and strengthen businesses against shocks.

Montebourg said France should expand a scheme that lets firms cut worker hours in a downturn, with benefits making up the gap in their salary - a system that is widely credited with limiting job losses in Germany during a 2008-9 economic crisis.

“When your revenue drops by 80 percent, the typical French reaction has been to kick everyone out the door, losing industrial know-how, skills, and devastating regions,” he told journalists in a briefing on the automobile sector.

“I am in favor of widening, of easing access to partial work rather than shutting factories - which is the German strategy that worked so well for them in the crisis.”

Continuing talks between unions and employers on labour reform include the question of whether to broaden use of the partial unemployment scheme. The government has called on all parties to produce a deal by end-2012.

Moving toward Germany’s so-called “Kurzarbeit”, or “short work” system, would respond to French executives’ complaints that when orders dry up, their only option is to lay off workers, a lengthy and costly process fraught with legal risks.

Currently, French firms can resort to so-called “partial unemployment” but financing is tiny, at under one billion euros ($1.30 billion), compared to the 6 billion Germany used for Kurzarbeit. In France the duration is limited to 12 months and applying for it is a lengthy process.

Among the strongest advocate for reform is struggling carmaker PSA Peugeot, which plans to close its Aulnay assembly plant and cut 8,000 jobs. Unions and management at its Sevelnord factory in northern France have struck a deal that grants Peugeot more flexibility on work hours.

Labour reform is one facet of a vast economic challenge facing President Francois Hollande, who must address joblessness above 10 percent while reducing the public deficit to 3 percent of economic output by 2013 to meet European targets.

Piling pressure on the Socialist leader, German Chancellor Angela Merkel and Europe’s central bank chief earlier urged euro zone states to reform to improve competitiveness.

France’s moderate unions favor changing the labour code, and can strike a deal with employers without support from hardline groups. Tougher unions may still call protests to pressure the government to block or water down a reform.

Reporting By Gilles Guillaume and Nicholas Vinocur; Editing by Mark Heinrich

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