Strike to Retire
The Economist, February 1, 2001
THE demonstrations have an almost ritual quality: by their hundreds of thousands, workers pour on to the streets of France’s main cities, wave banners, shout slogans, block traffic and then, after a good day out, go home, confident both of their bargaining power and of their popular support. Last week, the battle was in defence of pensions and the present retirement age; this week, the cause was more pay for the public sector. Only occasionally does the festive air turn nasty, as in Lille last week, when demonstrating firemen came to blows with the police, and a protester lost his right hand picking up a police tear-gas grenade.
But, tactics aside, what are the grievances? France has one of the rich world’s largest public sectors: some 5.4m people—about a fifth of the workforce—are employed by the state. Their average monthly salary after all deductions is a bit more than FFr12,000 ($1,700). If the government has its way, the public-sector unions will accept an initial 0.5% increase in the first year of a deal covering the years 2000-02. However, the unions, citing a loss of purchasing power in the late 1990s, are demanding annual increases of up to 3%, including a 1% bonus for last year. In reply, Michel Sapin, the civil-service minister, argues that a rise in the previous wage deal, signed in 1998, has actually put real incomes up.
However complicated the arithmetic, some sort of equation is sure to be worked out soon. For all that France’s Socialist-led government has been urged by the European Commission to trim its budget deficit, the political fact of life is that next month France will hold local elections whose results will be seen as an omen for next year’s parliamentary and presidential polls. Clearly, Mr Sapin and his colleagues will soon want to curry the workers’ favour, rather than stoke their anger. And in any event the difference between the two sides is hardly enormous: the unions’ demand for a readjustment of last year’s salaries would mean an additional cost to the French treasury of some FFr3 billion.
Would that the basic arithmetic at the root of last week’s demonstrations over pensions could be so easily fudged. Unfortunately, it has suddenly become more difficult with the decision of two big companies (Suez Lyonnaise last week, Bouygues this) not to buy “third-generation” mobile-phone licences from the government.
This will deprive the state of some FFr65 billion, money that had been earmarked over the next few years to build up the pension system’s reserves. That will, in turn, pose a painful political problem, since at the moment France’s pensioners enjoy virtually the same standard of living as the population as a whole. How can France keep up that standard?
Today, each retired person’s pension is paid for by the contributions of 1.7 workers. But within 40 years the burden will have to be borne by one worker alone, as the number of French men and women over 60 (the normal retirement age, with cosseted earlier-retiring exceptions for such people as train-drivers) goes up from a fifth of the population to a third.
Clearly, something must give. But what?
The answer from the bosses’ association, Medef, whose members employ around 14.5m workers, is to lengthen a worker’s career and so the amount of his contributions. To back up its idea, Medef has stopped paying its share of contributions into a fund that helps finance private-sector pensions for those between 60 and 65. In theory, from April some pensioners will find their income cut by 22%.
In practice, it will surely not come to that. For one thing, last week’s demonstrations have already softened the resolution of Medef’s president, Ernest-Antoine de Seillière. His original idea was that a working life should be lengthened by 2023 to 45 years. At the moment, thanks to a reform in 1993 which set a deadline of 2003, it is moving from 37 1/2 years to 40. Now Mr de Seillière, whose tough tactics have been criticised by many of his own members—not least Jean-Marie Messier, the boss of the Vivendi group—says 42 1/2 years will be enough.
Meanwhile, the unions ask a clever question: if it is so important for France’s bosses to lengthen their workers’ careers, why have so many of them concocted schemes for early retirement?
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