French small business faces job-creation hurdles

PARIS - Europe needs jobs, and French entrepreneur Daniel Joutard wants to create them, hiring more employees for his skin-care products company. Yet he can't take the risk - in large part because of France's inflexible workplace protections.

The 37-year-old is among thousands of small- and medium-size business owners who will be crucial to helping France - like other countries in Europe - reduce a double-digit jobless rate, and ultimately shrink its hefty state budget deficit by bringing in more tax revenues.

Small- and medium-size companies made up more than 99 percent of enterprises both in France and the EU more broadly, providing for about two-thirds of all employment, according to a study published in January for the European Commission. Crucially, across the bloc, these companies created about 85 percent of net new jobs from 2002 to 2010. France alone counts more than 3.4 million small- to medium-sized companies.

But businesses like Joutard's three-year-old venture, Ainy, say it's costly and complex to hire when times are good, and costly and complex to lay employees off when times are tough. And so they're staying small, and not taking on any workers at all.

Ainy's New-Age creams, hydration treatments and lip balms, have gotten solid press reviews, and business is good, with revenues doubling in 2011.

Joutard now has six employees.

"We could hire two or three more workers," Joutard said, but adds: "Hiring becomes a risk - because once you have hired someone, if the business is not there, it's complicated to keep that person busy."

And even more complicated to let that person go.

"So we'll only hire someone when we're 100 percent sure."

In France, which takes pride in its revolutionary past, labor reform is a tall order: Strikes are common and workers even occasionally take their bosses hostage - in "bossnappings" - as a form of protest. The last big government effort to make it easier to hire and fire in 2006, during President Jacques Chirac's tenure, resulted in weeks of protests that shut down universities nationwide - and was eventually scrapped.

French governments for years enshrined workplace protections to ensure job security, limit worker exploitation and abuse, and protect the French way of life. That fabled lifestyle includes generous holiday packages, state-sponsored health care, and - since the late 1990s - the controversial 35-hour work week.

The World Economic Forum, in its Global Competitiveness Report published this month, ranked France 141 out of 144 countries in terms of "hiring and firing practices."

Overall, France fell three spots from last year to 21st in the WEF's Global Competitiveness Index ranking. It generally fared well on gauges of infrastructure, health and education, and was 10th in innovation.

Therein lies the rub: Innovators like Ainy want to grow, and they do get help from the state to get going. But regulatory hurdles abound when those same companies want to grow and compete.

French labor law had its origins in a laudable idea, Joutard said: To protect workers from exploitative employers like those from the industrial era of the late 19th and early 20th centuries.

"But the world has changed, and is now much less predictable. So these protections become a brake," said Joutard. "A big company can handle these difficulties, it's harder for a small one."