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Macron’s Labor Gambit

French President Emmanuel Macron’s entourage has been wisely telling anyone who will listen not to expect too much from the proposed new labor code. Indeed, the economics of the reforms suggest that they are unlikely to make a big difference on their own.

CAMBRIDGE –At the end of August, French president Emmanuel Macron unveiled the labor-market overhaul that will make or break his presidency – and may well determine the future of the eurozone. His goal is to bring down France’s stubbornly high rate of unemployment, just a shade below 10%, and energize an economy that badly needs a kick-start.

Labor reform has long been on France’s agenda. Practically every French administration in recent memory has tried to rewrite the country’s gargantuan labor code, typically failing in the face of trade union protests. Macron makes no bones about what he is up against: he has described it as a Copernican revolution. But this time may well be different. Even though the country’s second-largest union has called a general strike, indications are that Macron will have the political support he needs.

Macron’s reforms aim at increasing what is euphemistically called labor-market flexibility. The proposed reforms would make it easier for firms to dismiss employees, decentralize bargaining between employers and workers in small firms (by eliminating sector-level agreements), and introduce a ceiling on indemnity for wrongful dismissal, providing firms relief from the unpredictability of damages awarded through arbitration. Moreover, the reforms remove a requirement that linked mass layoffs at large companies to such firms’ global profitability; companies will now be permitted to fire workers solely on the basis of domestic profitability.

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