France’s 35 Hour Work Week: Flexibility Through Regulation

In June 1998, France’s loi Aubry initiated the move to a 35 hour week, a process that became mandatory for all private companies with more than 20 employees in January 2000. The two-fold goal of the Aubry legislation has been to lower the level of unemployment in France and to introduce greater flexibility into French labor contracting. When it was announced, the project was greeted with skepticism verging on ridicule from the economic community. The Financial Times suggested that the law was “little more than symbolic.”

Economist Paul Krugman declared it “conceptually confused.”

The Economist gibed that French workers were unlikely to give up their traditional two-hour lunch break in the interest of flexibility.

The very notion that flexibility might be created through intensive government intervention is peculiarly French. More peculiar still, the policy may actually be working.

The success of the program is admittedly mixed. Measured in terms of employment creation, the success is probably more apparent than real. According to the OECD, French unemployment, which peaked at 12.4 percent in 1997, will fall to 8.8 percent by 2001.

In fact, strong economic growth has created most of these jobs. Even the Jospin government attributes only about one fifth of the new jobs directly to the 35 hour work week, and most economists believe the impact has been far less. Whatever the policy’s impact on job formation, France’s labor unions are happy with the shorter work week for traditional ideological reasons. They feel that shorter working times are simply better for workers’ quality of life, and recent polls of white collar workers suggest that they mainly agree with them.

Measured in terms of workforce flexibility, the success of the 35 hour work week has been perhaps more real than is yet apparent. In order to implement the shorter work week, what the French call the réduction de temps de travail (RTT), all French firms with more than 20 employees have had to renegotiate their labor contracts. In exchange for the RTT, workers have generally been willing to accept a more flexible allocation of their work time, along with some wage restraint. This has created new opportunities for companies to adapt to disruptive demand cycles. Samsonite workers, for example, have agreed to work 42 hours per week in the summer, when the demand for baggage is high, in exchange for a shorter 32 hours-per-week schedule in the winter.

At Carrefour, the French retail giant, cashiers have agreed to adjust their duties and work times in accordance with the number of customers in the store.

This kind of flexibility is possible because the loi Aubry requires only that weekly work time average to 35 hours across the year. This so-called annualisation can reduce the amount of overtime a company must pay, while also reducing layoffs in the off season.

The big losers, and the ones most likely take to the streets in protest over the RTT, are those sectors of the economy that cannot increase productivity through flexible work times. In some of these sectors, like restaurants and trucking, employees have always worked long and difficult hours. For them, the 35 hour work week can only drive up labor costs, without much possibility of offsetting the additional wages through greater worker productivity. The law will also face strong opposition from small businesses of all kinds. These small employers typically have fewer options for using their workforce flexibly. Small retailers, for example, worry that they may not be able to keep their doors open long enough under the shorter work week. Much of this struggle still lies ahead, since companies with fewer than 20 employees will be required to negotiate a 35 hour wage package beginning only in 2002. But already France’s Minister of Economics and Finance, Laurent Fabius, is concerned that the shorter week might significantly raise costs for small employers. He has called for greater flexibility in applying the RTT to the small and medium-sized companies. The Ministry of Employment and Solidarity has so far rejected this proposal, proposing instead that the government offer tax breaks to compensate for the additional costs of the 35 hour work week for small industry. More protests are likely before a formula is agreed upon.

Beyond these short-term adjustments, the RTT has the potential to fundamentally redefine French labor relations. One of the explicit goals of the loi Aubry has been to revitalize wage bargaining in France. France has always had a low level of trade union membership relative to other OECD countries. But trade union membership today has fallen below 10 percent of the workforce — down from 28 percent in 1979 — and even below the current US rate of 14 percent.

In an effort to raise the profile of France’s labor unions, the loi Aubry calls for companies to negotiate their new labor contracts either with the local labor union or with a representative of one of the main syndicates. France’s unions have greeted this requirement enthusiastically. They see shop-floor negotiating as one of the few routes to revitalizing France’s labor movement, and expect non-union workers to be drawn to them for assistance.

But this union-bolstering initiative also comes with a risk. French unions have long enjoyed disproportionate power due to France’s system of pattern wage bargaining. In this approach to wage setting, lead sectors such as automobiles negotiate wage agreements under the shadow of the state. These outcomes are then “extended” by the French government to other sectors of the economy. The problem is that labor contracts negotiated to accommodate the RTT tend to reflect the idiosyncratic competitive logic of each sector and even company to which they have been tailored. Big differences in the terms of the agreements will make any patterning of contracts across sectors and companies extremely difficult. The stakes for the French trade union movement are therefore high. The loi Aubry has given them an opportunity to draw in new membership, but it could come at the cost of a traditional source of union strength in France.

The loi Aubry may also lead, indirectly, to a fundamental reform of France’s strategy of unemployment insurance. For the government, the RTT has been successful, but not cheap. As a carrot to induce companies to create new jobs in conjunction with the move to a 35 hour work week, the government has agreed to subsidize the social payments (retirement, health care, workers’ compensation, and unemployment insurance) of newly hired low-wage employees. Specifically, any employee earning up to 1.8 times minimum wage receives compensation for the government for some or all of their social contribution. By reducing the tax on labor, these subsidies dampen the cost to industry of the 35 hour week.

The estimated cost of these concessions to the government for the year 2000 runs to 110 billion francs. Even at the highest estimated rate of new job formation, this amounts to roughly 1.1 million francs, or nearly 200,000 dollars, per job created. Much of the funding has been raised through growing alcohol and tobacco tax revenues. But a faster-than-expected adoption of the 35 hour work week has pushed up the projected cost of the program, and the government has proposed financing the over-runs out of France’s unemployment fund (UNEDIC). This use is appropriate, they argue, because the RTT will reduce the level of unemployment, lowering demands placed on UNEDIC. But employers don’t agree. They have put forth a counter-proposal that would lower unemployment costs by linking unemployment compensation levels to the length of time workers remain out of work. This, employers argue, would give the unemployed greater incentives to return to work, thereby lowering the burden of contributions to UNEDIC. The plan is still being considered by the government, but with growing pressures for fiscal restraint, and support from one of France’s three big trade unions, the CFDT, reform of France’s unemployment benefits will remain on the negotiating table.

Debates over the impact of the 35 hour work week are likely to persist long into the future. Ultimately, whether or not the move will help or hurt France’s economy will depend on whether new labor flexibility can create enough productivity growth and wage restraint to offset the new labor costs associated with a shorter work week. But whatever the economic verdict, politically there is no question that the French government has succeeded in applying a complex, socially contentious, and economically ill-advised policy reform with unexpected elan. The project’s success is especially surprising given the ongoing opposition of President Jacques Chirac, Jospin’s conservative counterpart under cohabitation. France’s 35 hour work week represents, after all, the kind of illiberal government intervention that globalization is supposed to have rendered virtually impossible today. It suggests that, even as the French economy makes concessions to the global economy, these are likely to arrive through a familiar kind of intervention by the French state.

Gunnar Trumbull is a research associate at the Center on the US and France.