Why France Has So Many 49-Employee Companies

http://www.businessweek.com/articles/2012-05-03/why-france-has-so-many-49-employee-companies

by nhebb • 14 years ago

54 95 14 years ago

thrill• 14 years ago

The books "A Year In Merde" and "Au Revoir To All That" are poignant reads.

maybird• 14 years ago

  After the owners of the Lejaby lingerie factory in
  Yssingeaux won court approval in January to fire about
  half their 450 employees in France and shift production
  to Tunisia, the company found itself thrust into the
  center of this year’s campaign.

So Tunisians are to France what Mexicans are to us?

TazeTSchnitzel2• 14 years ago

Replace "Tunisia" with "foreign country with cheaper labour", and "France" with "other countries", and you'd be about right.

dusing• 14 years ago

There is fundamentally something wrong with needing to go to court to get permission to fire your employees.

ernesth• 14 years ago

There would be something fundamentally wrong if your employees could not go to court to contest their being fired.

wazoox2• 14 years ago

You don't need permission to fire an employee. You need permission, however, to fire a significant part of your workforce at the same time. Typically you must justify it (for instance because your revenues dropped), and you can't fire in group again until after 18 months have passed.

These rules made much more sense when they came into application mostly during the forties. Back then, just after the war, there were good reasons to be wary of the industry owners, who massively "collaborated" with the Germans (because you know, business is business), and deem them guilty until proven innocent.

Wilya• 14 years ago

I wouldn't limit it to Tunisia, and would include the whole Maghreb, but yeah, it sounds kind of accurate.

wazoox2• 14 years ago

Somewhat. As former colonies, many Tunisians and Moroccans speak French (most educated ones do, at least), therefore it's a preferred outsourcing destination for French companies, particularly for services (call centres and the likes).

To some extent, other former colonies like Senegal and Madagascar profit from this too, but they're much farther away from France than Tunisia and Morocco (which are 2 hours away by plane and 24 hours away by boat) and have much less infrastructure to support industrial development (such as roads, ports and a decent electrical grid).

briandon20• 14 years ago

Bottom-lining it: Business owners and managers want to enjoy the benefits of a developed economy with a humane social safety net and strong worker protections (i.e. an educated, skilled workforce) but will move heaven and earth to weasel their way out of contributing to it. Nothing new here. It's what's grinding the life out of the United States.

planetguy2• 14 years ago

No, the bottom line is that people respond to incentives, and that politicians are too blind to notice even the most obvious of perverse incentives in whatever schemes they happen to dream up.

briandon20• 14 years ago

How about this for an incentive: Want your children to grow up in a developed country with a social safety net so that they won't trip over toothless senior citizens scavenging for recyclables in garbage bins to sell for spare change to pay for a place to sleep for the night?

Great, then be a responsible entrepreneur and don't try to slither through every crack in every law designed to keep the society that your kids will grow up in healthy.

learc833• 14 years ago

There are better ways to establish a social safety net than forcing companies to employ workers they don't want or need.

Look at the results of the law--not the intentions. The article says France has 2.4 times as many companies with 49 employees than with 50. This labor code is preventing companies from expanding, and encouraging companies to create new jobs in other countries rather than in France. The effect it is having is to protect existing jobs at the expense of new ones, and is an overall net drain on the economy.

If they, as a society, have decided they want a social safety net, why not work on something like a guaranteed minimum income or a negative income tax system instead? Give them the money directly so the costs are transparent instead of this roundabout regulatory nonsense.

briandon20• 14 years ago

No, the labor code is not preventing companies from expanding. The greed of the company owners/directors/management is preventing them from expanding. They don't want to share profits with their employees or have to rub shoulders with them and pretend for even a few minutes once a week that they are equal.

The can't-shed-employees meat of the article is:

  Software maker Viveo Group, an arm of Geneva-based 
  Temenos Group, began the required talks with the workers’ 
  council in February 2010 because it wanted to cut about a 
  third of its 180-member staff, according to court 
  records. Viveo offered employees a voluntary departure plan 
  in June of that year as the council dragged its feet on 
  evaluating the earlier proposal, court records show. 
  The workers’ council then went to court to block the 
  cuts. It won a ruling against the original plan in January
  2011 on the grounds that Viveo was forecasting an 
  18 percent increase in sales, meaning its future didn’t
  depend on the layoffs. France’s highest appeals court is
  reviewing the decision and is expected to rule on May 3.
  “What holds back hiring in France is the lack of clarity
  on how to legally cut jobs,” says Déborah David, a labor
  lawyer at Jeantet Associés in Paris who has followed 
  the case. If the decision is upheld, Viveo will have to
  take back the workers and hand over two and a half years
  in back pay, she says.

You have a company that shed a third of its workers. A workers' council fought for and managed to win a more favorable layoffs scheme for them than the employer would have liked but they were still layoffs. ["voluntary departure plan" is a terribly Orwellian name for a layoffs scheme] The company seems to have justified the layoffs as a matter of economic survival rather than claiming that a third of the workers that had been carefully screened, interviewed, and hired were actually no-good bums. It turns out that sales are now up 18%.

If they were great, skilled employees regretfully laid off out of economic necessity then why not hire them back now that business has taken a turn for the better?

The answer would seem to be that the company was not honest about their reasons for the layoffs. Either they used an excuse to rid themselves of undesirables and low-performers or they used the economy as an excuse to fire otherwise fine workers.

tomp7• 14 years ago

You can have the cake and eat it too: just make the government responsible for social safety net. It's separation of concerns at the most basic level - let the companies worry about the economy/profit, and the government worry about the society/people.

AFAIK, that's how they do it in Denmark. It's very easy to fire people (and therefore easy to hire them), but the taxes are very high, so the government has enough money to provide social security for the ones who have lost their jobs.

scarmig• 14 years ago

True. But the USA, believe it or not, is probably much closer to French politics and culture than it is to Scandinavian. (We have a similar tendency to do things to hide as many costs as much as possible, for instance.) So as far as you can do inter-country comparisons, USA-France is likely to be the more productive one.

jdietrich• 14 years ago

Youth unemployment in France is 20%. Their labour laws don't create a safety net, they just privilege workers over jobseekers.

briandon20• 14 years ago

Eighty percent of youths are employed. Of the one fifth who are not, it's likely that many of them are able to rely upon their parents or older, employed siblings for support while they themselves are seeking employment.

Weaken employee protections and social responsibility provisions and large numbers of the older, higher-paid workers will likely be replaced by lower-paid younger workers. Neither the still-employed non-youths nor the newly-employed youths nor the eighty percent of youths who had jobs will have any job security anymore.

That doesn't sound like a societal win at all.

The people pushing the youth unemployment figure don't actually care about youth unemployment. The point is to beat everyone over the head with that figure to get them to agree to stripping everyone's worker protections away.

mhartl• 14 years ago

Consider a limiting case. Upon hiring employee 50, you have to sell your company and donate the proceeds to charity. I hope that sounds crazy, but in case it seems warm and fuzzy bear in mind that all 50 employees are now out of work. Are you a greedy bastard for wanting to stay at 49?

Now relax the assumption. At employee 50, you have to start complying with a bunch of onerous and expensive regulations. This limits your ability to make profits and to continue growing your business—which, among other things, means being able to hire fewer workers and having to pay them less. The magnitude of the effect is less than that of the forced-charity sale, but the sign is the same.

These kinds of laws are based on a fallacy: they assume that the interests of companies and employees are not well-aligned. What is worse, such laws guarantee misalignment—thus exacerbating the very problem they're (ostensibly) meant to ameliorate. In medicine, this is called iatrogenesis. Did the bloodletting not work? That must mean we need more bloodletting!

These laws also create a decoy, which has effectively distracted you from the real enemy. The object of your ire should be boneheaded labor laws, not the "greedy" corporations trying to evade their restrictions. It's a diabolically clever political strategy, and it ensnares many a well-intentioned voter. But it's never too late to escape the trap.

briandon20• 14 years ago

You begin with a reductio ad ridiculum argument and segue into a spiel about employers' and employees' being aligned. I'm not sure whether your post earnestly reflects your position or was intended as a satire of the views of stereotypical Ayn-Rand-ites ("To the Gulch!").

Obviously, it's difficult to buy into the idea that employers' and employees' interests are aligned when business owners recoil in horror at the notion of having to meet once a week with the equivalent of shop stewards and bridle at having to explain why they need to lay off chunks of their workforce on short notice.

briandon20• 14 years ago

  Tired of delays in getting orders filled, Pierrick Haan, 
  CEO of Dupont Medical (not to be confused with chemical 
  company DuPont (DD)), decided last year to return 
  production of some wheelchairs and medical equipment to 
  France. The 150-year-old company, based in Frouard in 
  eastern France, created 20 jobs making custom devices at 
  a French plant—and will stop there. Faced with France’s 
  stifling labor code, Haan probably will send any 
  additional production of standard equipment to what he 
  calls “Near France”—Tunisia, Bulgaria, or Romania. “The 
  cost of labor isn’t the main problem, it’s the 
  rigidities,” Haan says. “If you make a mistake in your 
  hiring plans, you can’t correct it.”

The cited reason for moving production back to France (from where?) is production delays, which is safer than admitting quality problems.

The company is based in France and the fact that it had to move its manufacturing back to France constitutes an admission that the French workers are more productive than the previous batch of non-French workers.

The manufacturing jobs that this company is going to create in what Haan ludicrously refers to as "near France" (developing economies where labor is much cheaper -- but Haan isn't chasing cheaper labor, oh no) will be lower-skilled and/or that the resulting products will be labeled "Made in France" because those twenty workers in France were made to breathe on them or affix stickers to them at some point?

DrJokepu2• 14 years ago

I think you really misunderstand this.

I did work as a junior mechanical engineer in both French and Eastern European manufacturing plants, small and large. In my experience, labor is equally or even better skilled in Eastern European countries than in France. Since we're talking about trained workers, not qualified professionals, productivity is much rather a function of the skills of the management than the skills of the workers. Generally, small ateliers is France can be more productive than the large factories of companies such as PSA Peugeot Citroën. I have noticed no such correlation in Eastern European factories.

briandon20• 14 years ago

Since the workers in both shops were, as you say, equally skilled, what was the wage differential between the French and Eastern European workers performing equivalent jobs.

They weren't being paid the same wages, were they?

I'm doubtful that the workers in the Eastern Euro locations truly were as skilled as their French counterparts because I have heard the same said by suits w/re to US workers and workers in various parts of the Far East and have had the opportunity to visit manufacturing locations in both and it never turned out to be the truth.

Also, with regards to productivity of an enterprise being a function of the management, I would say that poor management is certainly capable of driving worker productivity into the ground but that the most can-do, gung-ho managers in the world cannot do much with low/un-skilled workers.

swombat3• 14 years ago

Please don't post 3 separate root comments replying to the same story, making it look like there's a lot of people agreeing with you when there are not.

Instead, edit your comment to add updates.

bryanlarsen• 14 years ago

His three comments address three separate points. If he put all 3 points into the same comment, then it would make the subsequent reply thread much more difficult to follow.

briandon20• 14 years ago

My username is clearly attached to each comment, so your complaint has no merit.

Luc• 14 years ago

Contrary to its stated bottom line, the main idea I got from this article is that being an employee in France is pretty sweet.

endersshadow• 14 years ago

Good luck getting a job, though.

simias3• 14 years ago

It's extremely easy to find a job as a developer in Paris. The problem is always with the unskilled workforce, in France and elsewhere.

I find all the reactions in this thread about how we should "just remove all those silly laws and the unions and let the good job creators do what they want and everything will be great and everybody will have a job" a bit naïve, to say the least.

The problem is complex and global, the "49 employee company" is just a red herring.

tomp7• 14 years ago

On the other hand, being unemployed sucks big time - you don't know if you're ever getting employed, because your stupid government is basically forcing companies to expand overseas instead of domestically.

briandon20• 14 years ago

  “For the 100 employees we have in France, we have 10 
  employee representatives, for whom we have to organize 
  weekly meetings even when there is nothing to discuss,” 
  Haan says. “Every time a social security contribution 
  changes, which is frequently, we have to update software 
  and send our HR people for training. We can’t fire anyone 
  without exorbitant costs.”

Instead of viewing the weekly meetings as a chance to touch base with his employees, learn about them, pick their brains for ways to improve the business, and the like ... he whines about the requirement to have the once-a-week meetings.

Then, he complains about having to tweak their payroll/withholding software and send the HR folks for training.

He must shed actual tears when regulatory agencies in the countries he sells his products into change the requirements that affect the design and source materials so that he has to have them tweaked or even redesigned from the ground up.

Sociopathy in management/leadership is a very real problem.

pgmcgee• 14 years ago

You do realize that these things cost real money, right? Costing money for meaningless, valueless endeavors makes a business's overhead go up. When the overhead goes up, it has to be cut in other ways, usually by cutting employees. Unfortunately, that's difficult in France, which is why he is complaining. It's not sociopathy, it's business.

briandon20• 14 years ago

Meaningless, valueless endeavors like the once-a-week meeting that Haan was terrified of having to have with representatives of his own workforce? Or is government mandated profit-sharing the meaningless valueless endeavor?

Somehow, inexplicably, these pernicious overheads never manage to take a significant toll on of executive compensation, perks, and the like.

tomp7• 14 years ago

What the fuck are you talking about?

He's not complaining about having to tweak his accounting software - he's complaining about having to do that frequently, and seemingly without any good reason.

Usually, when regulatory standards about material products change, they change for good reasons - e.g. poisonous plastics in children's toys. Anyone can understand why such changes are needed. However, if you're changing this or that detail of a country's tax code, without any good motive (i.e. when the politicians are obviously just picking up the low-hanging fruit to please the superficial (majority of the) public, but allow the deeper, structural problems in the economic incentives to persist), you just incur an unnecessary cost on the companies!

Kinda reminds me of the "menu costs", an implicit cost associated with inflation, which is the cost of reprinting the restaurant menus when the prices change too much. An economic cost that exists because of the inherent inefficiencies of our system.

briandon20• 14 years ago

How often do you think that the French government is changing the social security contribution requirements? Every week?

W/re to "menu costs", if you're running a restaurant in Weimar-era Germany or some other milieu where hyperinflation is running rampant, then maybe you'll have to use xeroxed paper menus for a while. Obviously the cost of reprinting your menus is not going to be your chief problem. Under normal conditions, "menu costs" and the like (reconfiguring software to increase or decrease workers' social security contributions) is not going to be a business-breaking expense.

Pretending that it's such a hassle that it will drive him to madness or sink his business is ridiculous.

ap222133• 14 years ago

To me, it seems like a decent structure, and I wish that the US had something similar. As the article says, there's nothing stopping the business owner from starting multiple 49-person companies. Therefore, the system isn't technically holding anyone back. It's just slowing down their greed and consolidation of resources, which is a good thing.

There's also nothing stopping the companies from outsourcing non-core work to other 49-person companies. Seems like there's a lot of market opportunities that entrepreneurs aren't taking.

tomp7• 14 years ago

Take a look at how Denmark handles it. Companies are basically free to hire/fire as they wish, but there is strong social security, meaning if you loose a job, you're not without income.

The problem with such stringent firing laws is that they only give security to the people who are currently employed. However, they do not necessarily benefit the society, i.e. new workers won't be hired when they're needed, and companies won't expand, and the economy won't develop as rapidly, simply because it's too hard to fire someone when you don't need them anymore.

ap222133• 14 years ago

I don't see it that way. I see it as a society that that imposes big rules on big companies in a way to help keep many companies smaller.

Maybe the details don't work out well. Perhaps 50 is too small. There are probably other issues in the details, but in principle, it seems interesting and useful.

JVIDEL3• 14 years ago

Nothing new here, this is what happens when politicians make their work easier by making everyone else's harder, case in point in Argentina because politicians there can't bother to fix the deficit they raised taxation to almost 60% across the board.

Result? everyone from rich to poor evades taxes and the grey market is over half the economy, with (some say) 2/3 of unskilled workers being paid cash-in-hand, no questions asked.

Because customs charge a similar 60% on imports plus a 27% VAT on top almost everybody in the country buys stuff from smugglers, from shoes and clothes to computers and even cars. Piracy and counterfeiting are so out of control that some companies are shutting down, leaving people on the street.

So at the end that country losses more money and has an even bigger deficit than if they had much lower taxes, why? because evading taxes is hard and risky, you are not going to bother doing it if it barely improves your numbers.

But at 60% taxation you might go broke if you don't evade! see the problem?

Lots of policies are ridiculous, but others are far beyond that: unrealistic, you simply can't ask that much and expect the economy to keep going.

EDIT: if you want to know more about the anti-business craziness going on in Argentina read this http://bit.ly/lUbWOo

tomp7• 14 years ago

However, it is to be noted, that high taxation is not the problem per se - in Scandinavic countries, taxation is also high, but the citizens get much in return: free healthcare, free (and very good) schools, some serious social security benefits, etc...

wlievens10• 14 years ago

It's probably more about fair taxation: knowing that you get something back and your neighbouring isn't paying less though making more.

JVIDEL3• 14 years ago

I know, but people who live there say that because of the deficit public services have suffered many cuts and are far worse than before.

Add rampant inflation to that and it gets uglier, even aspirins are expensive over there.

zackmorris• 14 years ago

Anti-business is another way of saying pro-labor. The original intent of these laws was the same as in Germany, to have labor fairly represented in companies.

In Germany, it's law that 50% of a corporate board must be made up of labor. That's one of the reasons why their companies are doing so well right now, because they don't make the stupid decisions that American companies make when management is so far removed from day-to-day operations. Where we would fire 20% of a company during a recession, the German government gives the workers a day off a week and pays their unemployment, so that the people have money in their pockets to keep the economy going.

So the real problem here is that the French government didn't anticipate conglomerates of 49 person companies skirting the laws. The reason unemployment is high is DUE to these 49 person companies, not in spite of them. If they had 50 or more people, then labor would vote to hire more workers, which is precisely what management doesn't want. They are just like management here, they want less labor, working longer/harder hours for less pay.

For anyone reading this, I highly recommend watching Thom Hartmann on FSTV for 2 weeks (http://www.thomhartmann.com), and you'll never look at civics/history/politics the same way again. There is a whole other side to these issues that we just don't get exposed to here in the US. For as much as hackers complain about being marginalized in the workplace, it worries me that we seem to be so misinformed about the root causes of it and how to solve it.

JVIDEL3• 14 years ago

Don't try to oversimplify this: Germans have some of the most skilled workforce in the world, and their small companies are very engineering heavy, unlike most French startups.

There's a long way between that, the American system and the French system, and the Germans have only just become competitive after being almost stagnated for over 20 years, but of course you don't care about this little fact just the part that benefits your point.

And if success is everything then you must be totally cool with the Chinese work-till-you-drop way since it works even better than the German option.

However I don't, and unlike you I see overderegulation and overregulation in the same way: they are both bad for business because each benefits one side and one side ONLY.

You need balance, get it?

aristidb2• 14 years ago

When even Germany has a comparatively flexible labor code, you're doing something wrong.

wlievens10• 14 years ago

Germany's labor code is very flexible compared to the rest of Western Europe.

aristidb2• 14 years ago

Which countries comprise Western Europe for you? Is, say, Denmark included in that set?

paulhauggis3• 14 years ago

" “If you make a mistake in your hiring plans, you can’t correct it.”

This is the problem right here. It doesn't give the business owner the freedom to fire bad workers easily.

It's funny because unions are mini versions of France (and they come with all of the same problems).

simias3• 14 years ago

We have a trial period when a company hires someone, I think it's 4 months that can be extended to a maximum of 7 months. During this period you can fire the new hire if he or she doesn't fit.

So if after 7 months you suddenly realize that you've hired a bad worker, you're doing something wrong.

Being able to fire people easily is good for the business owner but bad for the employees. That's part of the reason unions exist and are useful.

paulhauggis3• 14 years ago

"Being able to fire people easily is good for the business owner but bad for the employees. That's part of the reason unions exist and are useful."

This line of thinking has ruined the auto industry in the US and it's one of the the reasons we have a terrible education system.

If I have a bad worker (even after 7 months), I should be able to easily get rid of them (with cause). As a business owner, I shouldn't have to waste my time going to court or having some sort of 3rd party vote on whether I can fire them or not.

Businesses will never thrive in this sort of environment.

paulhauggis3• 14 years ago

After reading through the article, it looks like one big shell game to me. They are forcing companies to keep people employed, even if profits are low.

Not only that, they are trying to solve the job problem by just adding a bunch of jobs to the government dole.

Eventually, this will catch up to them and it won't be pretty. I just hope the proper people are blamed and they learn from their mistakes.

chris_wot• 14 years ago

Worst. Logic. Evar. "if cars are more complicated today than ever, why shouldn't our labour laws be as complicated?"

gren• 14 years ago

This is a bug for me, it seems we have a discontinuous function in the Code Du Travail !

Why France Has So Many 49-Employee Companies

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