Protest Against French Labor Law Reform Is Justified

400,000 French people, mostly students and civil servants, went out on the streets to protest against the labor code reform proposed by the French government (NY Times 2016). The Khomri law (named after the labor minister) would make it easier for companies to fire workers, lower redundancy payout, and flexibilize overtime requirements, which would dismantle the standard 35-hour work week. Most full-time workers currently work longer than that, but get paid overtime at a higher wage rate beyond the standard week; under the proposed law employers can impose a maximum of 46 hours of work for 16 consecutive weeks in 3 years (see Reuters 2016).

Ironically, even some employers are opposed to part of the reform bill, because it would seek to tax short-term contracts higher in order to incentivize long-term contracts (LeMonde 2016). Trade unionists from the CGT are furious about the law and vow to fight it with mass mobilization and strikes. In their conference in Marseille, chairman Olivier Mateu, sees their opposition to the labor reform as “an opportunity to reinforce their class organization, mass, democracy and unity” (il voit dans le congrès de Marseille « l’occasion de conforter notre organisation de classe, de masse, démocratique et unitaire ». LeMonde 2016).

The Economist (2016) makes fun of the young student protesters against the law, because making it easy to fire more elderly workers would create more job opportunities for younger workers. The economist Jean Tirole claims that the onerous labor regulations, which make it difficult to sack workers, encourage firms to hire young workers only as temporary contractors, or not to hire them at all, which is reflected in the 24% youth unemployment rate. But how does the Economist know that the youth will benefit by displacing the older age workers?

Many Mediterranean countries, including Spain, Greece and Italy, have submitted painful labor reforms (in some cases under the duress of the EU troika like in Greece), but their youth employment picture is not substantially better than before. In Greece it remains around 50%, in Spain around 45% and in Italy around 40%. This to me suggests that the secret to reduce the stubbornly high youth unemployment rate is not to make it easier to displace older workers, but to create economic growth, which will feed into job creation. (Or hopefully it does, because jobless recoveries of the recent past reflect the power of current automation technology to displace rather than augment employment, of which we have only seen the beginnings.)

Critics will now object that economic growth is prevented by having older less productive workers commanding most of the jobs, while seniority rules grant them relatively the highest wages. Therefore, the profit per employee is less, and without sufficient profit, there won’t be enough investment opportunities for capitalists, so there can’t be economic growth. Replace these old high wage- low productivity workers with young low wage- high productivity workers, restore the rate of profit, and produce new economic growth.

First, it should be doubted whether the calculation of low productivity works out this way. Older workers still make valuable contributions to their company. Second, I have yet to see any empirical evidence, where the easy firing makes job opportunities more abundant for the young. Redistributing jobs is merely a zero-sum game, creating many economic losers, and fewer winners. Even if we accepted the argument that if old workers are losing their jobs for young workers, how long will this effect last? There might be the initial boost of productivity, and the reduction of unit labor cost resulting from the cut in wages paid to young relative to old workers. And then what happens next year?

The supply-side argument says that higher profits are a panacea to growth, but lower wages are not a panacea to create higher profits. In fact, if capitalists are merely looking for ways to push down the wage bill, they are merely reinforcing the contradiction of higher output but not sufficient markets to absorb these products. French manufacturers could increase exports to displace this contradiction, but the French trade balance has been negative since they introduced the euro in 2002, and the main reason is because their German trade partners have used the currency to their own advantage (by keeping the wage bill way below inflation, which the French companies with more militant labor have not matched).

The French president realizes that the country is trapped in this neoliberal paradigm, where low growth, high profits among M&A corporate behemoths, high debts (emanating from private households and the banking sector), low wages, insecure employment and high inequality rule the roost. Instead of daring to challenge this paradigm by either developing a new growth machine (as is tried with Canada’s 3 year deficit-funded infrastructure investment program) or by opposing the capitalist growth paradigm via nationalization or a universal basic income, he helps to make the situation even worse by accelerating the neoliberal agenda.

In that situation, Hollande will not be able to get re-elected, which is reflected in his dismal poll numbers. (Can he even be considered a ‘socialist’ anymore?) The center-right is equally bankrupted, only offering the same old face, Nicolas Sarkozy, and dressing him up as hope and change for the country. That leaves the French people with Marine LePen, whose rabid nationalism and xenophobia does not give the French people any better opportunities, but some faint hope.

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