Flexicurity: can it work for France and Germany?[fr][de] 

Much of the discussion since the publication of Sapir's report has been on the question of how features of the more successful economies - namely the Nordic ones - could be made to work for those lagging behind. In particular, the systems of Germany and France, which used to be the motor of the EU economy, have come under scrutiny. 

In Sapir's presentation, France and Germany are in the 'continental' sector. Both countries' social systems are characterised by a relatively high degree of employment protection: enterprises argue this makes it tough for them to hire people whom they would then have difficulties firing again. 

Average tenure in years with the same employer

Source: http://www.socsci.auc.dk/carma/carma-1.pdf  

In France, Prime Minister Dominique de Villepin’s attempt at introducing ‘flexicurity’ into work contracts aimed at youth under the age of 26, is facing furious opposition from student organisations, trade unions and the Socialist party. Called ‘Contrat Première Embauche’ (CPE), the new work contract tries to draw on the Danish ‘flexicurity’ model by allowing companies to hire young people and keep them on a trial period for two years. On the security aspect, the CPE gives young people a right to claim unemployment benefits after 4 months spent on the job instead of the currently complex system where benefits are paid on the basis of 6 worked months out of 22. 

The CPE was presented by de Villepin as offering pragmatic responses to the problem of continued high youth unemployment. Unveiling the new measure on 16 January, he pointed to a jobless rate of almost 23% for the under 25s compared with a 9.6% rate for the overall population. And education, he added, is no longer a guarantee against precarious work conditions. "When they finish their studies, [young graduates] take from eight to eleven years to find a stable job. In the rest of Europe, it is half as much," de Villepin pointed out.

In Germany, the popularity of the so-called grand coalition government led by Angela Merkel rests at least partly on the fact that the most unpopular labour market reform measures had already been introduced by the previous government, led by Gerhard Schröder. It may well be argued that the reforms, in particular the 'Hartz IV' reforms cost Schröder his office, resulting in an unprecedented election success for Germany's left wing. 

The key measure of the 'Hartz IV' reforms was to bring together long-term unemployment benefits and social security benefits under a new 'Arbeitslosengeld II'  ('Unemployment Benefits II') scheme, leaving both at approximately the lower level claimants received prior to the reform (up to 345 euros per month plus cost of "adequate" housing). For the first year, the unemployed receive benefit of 60 to 67% of their last net salary (1½ years for unemployed people 55 years old and over); then they enter into the Arbeitslosengeld II  scheme. 

Unemployed people who have savings or taken out life insurance are not eligible for Arbeitslosengeld II until that money is used up. They are also not entitled to payments if they have close relatives who could provide for their living. In contrast to the former scheme, unemployed people can also be forced to take any job, irrespective of whether it provides subsistance and whether the job is suited to the unemployed person's professional skills and qualifications. 

With the reforms, Germany has taken a big step away from a flexicurity-inspired model rather than towards it. The central idea behind the Danish model is to keep workers motivated by offering them benefits (up to 90% of their last income) that allow them to keep their standard of living even in times of unemployment and to use these times for promoting their professional skills. The new German model, in contrast, lowers the level of  social protection and forces those unemployed people who have made provision for their old age in the form of life insurance or savings to give those up, leaving them at a minimum social welfare level when they reach retirement age. 

In addition, Germany's relatively strict rules on protection from dismissal have hardly been touched. The result will be a continued reluctance on the part of employers to hire more workers than they are sure to be able to employ long-term. In particular small and medium-sized enterprises will feel the negative consequences of this policy. In the mid-term the number of people threatened by poverty in the retired population, which itself is growing, will lead to a decrease in consumption which will have further negative repercussions on the economy. 

In France, criticism has piled up on the CPE. The  Socialist Party   described it as "a present to businesses who will be able to break their commitment at all times" during the two year probation period, without having to provide any justification. 

Even the French employers' association  MEDEF has voiced criticisms saying the CPE would regard young people as a separate category. "There is a risk of diminishing the value of young people employed on a CPE," said MEDEF chief Laurence Parisot, adding that education is a more relevant factor in fighting youth unemployment. "There is a considerable difference in the business world between graduates and non-graduates," Parisot said. In this respect, MEDEF is backing a socialist argument which criticises the contract for being aimed at all youth, irrespective of their professional qualifications or level of education. MEDEF recently backed the CPE but asked that it should live alongside existing types of contracts and not be a substitute for them.

In Germany, Jürgen Thumann, President of the Association of German Industry (BDI ), said labour reforms in Germany were aiming in the right direction, but they were being badly implemented. "This concerns both the organisation of the workforce and the fact that costs are by far exceeding projections."

Michael Sommer, President of the German Trade Union Federation (DGB ) said: "Hartz IV has poisoned the social climate in Germany. [...] Staff have become subject to blackmail because they know that if their companies close down, they will be subject to Arbeitslosengeld II after a year."

Werner Hesse of the German Association of Social Services ( Paritätischer Wohlfahrtsverband ) said, "All that the reforms have brought us is less money for the unemployed." He added that the Hartz reforms were partly to blame for the current figure of 6 million Germans threatened by poverty. 

PES President Poul Nyrup Rasmussen, former Danish Prime Minister of the Social Democrat government 1993-2001, said in an interview with EurActiv: "The big dilemma is that with globalisation you are changing jobs many more times in your lifetime. So how do you move from a society based on a permanent way of life with a steady job to a new society based on many job changes? Changes are always very difficult to make and you can say that what we are talking about is trying to give a European response to globalisation without copying the American model. That is, ensuring that social security is not in contradiction to growth and competitiveness, but a part of it. And the big question is of course, up until now the majority of European countries have focused on ensuring that workers are protected in their jobs for the major part of their life in the labour market."

When asked by EurActiv about the transferability of his country's flexicurity model, Danish Industry Director General Hans Skov Christensen said: "You can meet challenges with two different reactions. You can hide in a silent corner where you hope that all those changes will stop one day. Or you can look out for how to benefit from the changes in the world, how to use them, turn them into challenges. That’s what it’s about for us in Denmark: to try to benefit from changes and be stronger than we would be without them. That’s the way we try to look at it. And it’s the way that I at least would recommend to each and every country: try and analyse your own strengths and inadequacies, and see how you could use changes to become a winning nation. If I compare the difference between Denmark and Sweden for instance: in Denmark, for each job that we move away from the country, we create more than one new one. In Sweden it is less than one. And therefore they will have to do it in another way."