France unveils ‘Jobs Act’ intended to boost hiring at small firms

Measures will encourage small firms to hire by making labour rules more flexible

France has taken steps to tackle rampant unemployment with a series of measures to encourage small firms to hire by making labour rules more flexible and cutting costs.

Uunemployment in the country is stuck above 10 per cent, despite growth in the economy showing signs of picking up. President Francois Hollande has said he will not seek a second term in 2017 if unemployment has not dropped by then.

Small firms “can hesitate to hire because they feel there is too much uncertainty, too much complexity,” prime minister Manuel Valls said.

“Today’s measures are meant to lift the constraints ... and make life easier for small and very small firms and encourage them to hire.”

The changes will be closely watched by France's European Union partners as a test of its commitment to reform. The European Commission, the IMF and OECD think-tank have all said that making it easier to hire and fire should be the top priority for France.

As part of the package of measures unveiled on Tuesday, higher tax and social security contributions that usually kick in at various thresholds up to and including 50 staff will be waived for the first three years after the thresholds are passed.

Small firms will be allowed to renew short-term contracts twice instead of just once, provided the total duration of short-term contracts stays below 18 months in total - a move that allows employers to avoid making the employee concerned permanent and therefore more difficult to fire.

Firms that hire an employee for the first time, either on a short-term contract of more than 12 months or on an indefinite contract, will receive a €4,000 subsidy from the state over two years. That measure will be valid for contracts signed between June 9th, 2015 and June 8th, 2016.

Penalties for unfair dismissal will be capped according to the duration of employment, level of salary and the size of the firm. The government hopes this will reduce legal uncertainty and cut the duration of lengthy labour tribunals.

The measures target France’s 2.1 million “very small” and 140,000 “small and medium sized” firms.

They will cost the government about €200 million, economy minister Emmanuel Macron said.

For the French government, the measures are “a Jobs Act, the French way,” in reference to Italy’s labour reform, which prime minister Matteo Renzi credited on Wednesday for strong jobs growth.