Long-awaited report on French productivity calls for drastic cuts to labour costs

Louis Gallois is due to present his long-awaited report on French productivity to the French Socialist government
Louis Gallois is due to present his long-awaited report on French productivity to the French Socialist government Jean-Paul Pelissier

A government-commisioned report on French productivity has recommended a 30-billion euro cut to labour costs in order to rejuvenate France's sluggish economy.


Louis Gallois, a respected industrialist and the former head of the French railways company SNCF and the European aerospace group EADS, the maker of Airbus, was asked by François Hollande’s government to suggest ways to reform the French economy.

He handed the long-awaited report to French Prime Minister Jean-Marc Ayrault on Monday, even though most of the key details have already been leaked to the press.

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The report listed 22 key measures, including a “shock” 20-billion euro cut to employer payroll levies and a 10-billion euro reduction to employee levies.

In return, the tax burden will be shifted to workers by increasing either the so-called CSG levy which helps to fund the country’s social security system, or raising the VAT sales tax.

There are also measures to boost innovation.

Mr Gallois's report says the levies should be lowered within a maximum of two years.

“We need to establish a sort of social pact between all the stakeholders; a social pact that will form the basis for competitiveness in France,” he told reporters.

“I think we need real action and, I’m not afraid to say it, a real patriotism. The ‘France club’ needs to work in solidarity and work to win back [its competitiveness],” he added.

“This will take time. This means there needs to be a method as well as perseverance.”

The Government is due to announce the first measures to be implemented from the Gallois report on Tuesday.

But measures to lower labour costs could be delayed until the government receives another report at the beginning of 2013 on the financing of social welfare.

Speaking on a visit to Laos, the French President, François Hollande, said ahead of the report's delivery that the government will consider “all the conclusions” in the report, and promised “everything will be done” for job creation.

“Behind the word ‘competitiveness’ is the word ‘growth’ and, above all, the word ‘jobs’,” he added.

The Minister for Industrial Regeneration, Arnaud Montebourg, told radio station RTL that the Gallois report needs to be “studied, analysed and respected.”

“We are in an urgent economic state,” he said, and it is necessary “to find a sort of national consensus in order for industry to survive, rather than subside.”

French politicians and business leaders have been vigorously debating for months on ways to kick-start the economy and stem the rising unemployment rate, which now stands at 10 percent.

Economic growth is virtually at a standstill, and over the summer, several major French industrial firms announced drastic restructuring plans and job cuts.

The share of French industry in global trade has shrunk from 6.3 percent in 1990 to 3.3 percent in 2011.

French businesses have long decried rising production and labour costs in relation to those in other countries, in particular Germany, which has so far managed to weather the economic slowdown in the Eurozone.

Last week, Jean-Marc Ayrault appeared to suggest the Socialists’ landmark 35-hour week policy might be reviewed, but he soon backtracked.

The economic woes have also affected President Hollande's personal approval rating, which has plummeted since he took office in May.

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