France: SMIC and the 35-hour week
The first step has been taken towards achieving convergence of the variety of SMIC rates in force as a result of the 35-hour week. A recent report issued by the French economic and social council suggests a number of ways in which this can be achieved, ranging from short- to medium-term solutions. The government is expected to issue proposals, based on the council's report, in the near future. One of the central problems is the cost of bringing the hourly rate of SMIC into line with the range of guaranteed monthly rates now in existence.
Background
The issue of minimum pay in France has become complicated in the extreme since the advent of the 35-hour week, introduced on 1 February 2000 by the second loi Aubry on 19 January 2000.
The reduction in the working week from 39 to 35 hours implied a loss of pay for those workers receiving the hourly rate of the national minimum wage (salaire minimum interprofessionel de croissance - SMIC) who were reducing their working time. To ensure that no worker was worse off, the government put into place a monthly guaranteed rate (garantie mensuelle de remuneration ), which covered all workers who have cut their working time to 35 hours. However, the complication arose in the fact that the actual level of this monthly guarantee differed according to the precise date of the working time cut and the level of the hourly SMIC at that time.
Effectively, this has meant that there are many different monthly guaranteed minimum rates in existence, a complexity which the government is now keen to eliminate, not least because it has been complicating the entire minimum wages system and introducing unequal pay for workers carrying out the same, or comparable, tasks. It would like to end the proliferation of monthly guaranteed rates and bring about full convergence with the hourly rate of SMIC - this hourly rate has fallen behind the monthly guaranteed rates due to the fact that the monthly guarantees contain a premium to compensate for pay lost owing to the reduction in hours.
The economic impact of the 35-hour week
Over the past few years, the growth of the wage bill as a result of the transition from the 39-hour week to the 35-hour week has been either fully or partially compensated - for companies employing workers paid at the SMIC - by the reductions in social security contributions set out by the 35-hour week legislation, coupled with earlier reductions associated with low-paid jobs. It is estimated that the productivity gains associated with the 35-hour week amount to around one-third of the actual reduction in working time.
Nevertheless, there remain great discrepancies according to company size and sector. In general, the cost of the legislation increases with company size. However, the cost is lower the more rapidly a company adopts the 35-hour week. This means that smaller companies, which are in general more tardy and have a proportionately larger number of workers on the SMIC, are affected by the legislation to a greater extent.
This increase in the cost of labour paid at around the level of the minimum wage certainly affects the supply of, and demand for, unskilled labour. However, there are other cost factors, such as the total cost to the state of reductions in social security contributions, or the indirect consequences of the level at which the SMIC is fixed for low-paid public employees.
The social impact of the 35-hour week
The growth of purchasing power for employees on the monthly guaranteed rate is lower than that for employees who are still working 39 hours a week and are paid according to the hourly SMIC. Amongst those on the different monthly guaranteed rates, some are worse off than others. Those that are most disadvantaged in terms of purchasing power are those who transferred the earliest to a 35-hour week.
The complexity of the 35-hour week legislation means that employers often find it difficult to manage, which, in turn, leads to poor enforcement. Small and medium-sized companies, as well as those in the craft sector, are especially affected as they often do not have specialist human resources departments to deal with implementation. Lack of transparency in terms of pay affects both employed workers and temporary workers, who may simply not understand their payslip for work which is remunerated by the SMIC, but based on varying rates, according to where they are working.
This complexity also creates difficulties during wage negotiations. On one hand, the existence of multiple levels of the minimum rate makes it hard to conduct sectoral negotiations. On the other hand, as most sectors have recently kept pay stable by means of pay freezes or pay moderation, many are finding that their agreed sectoral minima are being overtaken by the SMIC or the guaranteed minimum.
Finally, the system of monthly guarantees contravenes the principle of the same wage for the same work, since, effectively, employees are paid different rates according to the hours that they work.
Proportion of beneficiaries of minimum SMIC and monthly guarantee as at 1 July 2001
|
Size of company (no. of employees) |
SMIC plus monthly guarantee (%) |
Hourly SMIC (%) |
Monthly guarantee (%) |
|
1-9 |
30.1% |
27.8% |
2.3% |
|
10-19 |
16.9% |
14.6% |
2.4% |
|
20-49 |
14.1% |
8.4% |
5.8% |
|
50-99 |
13.5% |
5.2% |
8.4% |
|
100-249 |
10.8% |
3.1% |
7.8% |
|
250-499 |
6.3% |
2.0% |
4.3% |
|
500+ |
4.8% |
1.8% |
2.9% |
|
Mean |
13.9% |
9.8% |
4.1% |
Source: Dares.
Pledge to harmonise SMIC
In the face of these growing economic and social problems, the previous government stated its intention to try to introduce SMIC harmonisation by 2005, but there were no clear plans for the means to bring this about.
When the new government came to power earlier this year, it stated its intention to commence the harmonisation process from 2003, and referred the matter to the economic and social council (Conseil Economique et Social - CES), a tripartite body that advises the government on social and economic policy.
This intention was reinforced by the government's revision of the level of the SMIC on 1 July 2002. The SMIC is revised according to a formula that takes account of movements in purchasing power for hourly-paid blue-collar workers and inflation. The government also has the option of giving it an extra boost, something which it has done on numerous occasions in the past. This July, however, the increase was 2.4%, which was the minimum required by the indexation formula. It now stands at €6.83 per hour, compared with €6.67 as of 1 January 2002. The government justified this move by stating that it is now a priority to move towards a return to a unitary minimum wage.
The CES issued its advisory report on 10 July 2002*. On the basis of its advice, the government will announce a definitive scheme for harmonising the SMIC in the autumn of 2002.
The CES report
The CES report was presented on 10 July 2002 by Jean Gautier, representative of the temporary commission established to examine SMIC harmonisation. It sets out a range of alternative proposals to harmonise the multiple rates currently in existence, advocating upwards harmonisation.
Gradual phasing-out of different rates
The first set of proposals are based on halting the creation of new monthly guaranteed rates beyond that already agreed from 1 July 2002, beginning the convergence of the existing rates by 1 July 2005 and achieving full convergence by 1 July 2009. This would enable a boost of 9.9% to be given to the hourly rate of SMIC in 2009, with 2.5% increases between 2006 and 2009, to ensure convergence. However, this has the disadvantage of prolonging pay moderation and inequality of treatment between individuals.
Nominal freeze of monthly guarantee until 2005
This option is based on halting the creation of new monthly guaranteed rates after 1 July 2002 and thereafter imposing a nominal freeze on the last guaranteed rate (ie the 1 July 2002 rate) until it disappears on 1 July 2005. This formula would bring down the boost required to be given to the hourly rate of SMIC to 3.8% (compared with the 10.6% which would currently be required). However, this has the disadvantage of causing considerable losses in the purchasing power of the monthly guaranteed rates between 2003 and 2005 as the 1 July 2002 rate is calculated to lose 1.5% in purchasing power per year over three years.
Nominal freeze of the monthly guarantee until 2007
Another option would be to take the 1 July 2002 monthly guaranteed rate and freeze it until 2007. The previous guaranteed rates would continue to exist until they reached the level of the 1 July 2002 rate. This would therefore combine elements of the first two options, although it would also combine the disadvantages, ie pay moderation until 2007 and a significant loss in purchasing power for the workers involved.
Immediate convergence
This would entail aligning all the guaranteed monthly rates with the highest rate in force and increasing the hourly rate of SMIC by 11.4% on 1 July 2003. From that date, the unitary level of SMIC would be restored on a permanent basis and would not entail any disadvantages to employees moving to a 35-hour week.
Staged convergence
This would entail halting the creation of new guaranteed monthly rates in July 2002, aligning all existing rates to the highest level, but raising the hourly rate of SMIC over a number of years. Thus, a boost of 3% could be given to the hourly SMIC on an annual basis for each of the three years from 2003 to 2005.
Immediate or staged convergence would, however, mean an increase in production costs for companies that are not yet applying the 35-hour week. However, this could be accompanied by reductions in social security charges, targeted at the sectors and types of company that would be most affected - principally companies with fewer than 10 employees, retail services, agricultural activities, agri-food industries and commerce. Further, flexibility in application time limits could also be introduced.
Fundamental values
The CES report also contains a section that elucidates the fundamental values that should underpin whichever final option for SMIC harmonisation the government chooses to adopt, in consultation with the social partners. These are as follows:
Reactions to the report
Dennis Kessler, vice-president-elect of the employers' organisation Medef, maintains that this issue is one of such complexity that those who put it into place (the previous government) simply decided to leave it to other people to sort out the details. The main problem is returning to a single level of SMIC following the existence of a range of different rates. He believes that there must be a solution to the problem, but "not at any price and certainly not at a cost of an 11.4% increase in the rate of SMIC for those who are working a 39-hour week". He also believes that this would entail the destruction of tens of thousands of jobs, which is not acceptable. He also does not want to see a further increase in the hourly rate of SMIC for those who are already working a 35-hour week.
Medef believes that economic realities must be taken into consideration, in particular the low increases in productivity experienced in recent years. It therefore proposes that there should be no new monthly guaranteed rates - the 1 July 2002 rate should be frozen and brought into line with SMIC over a period of five years.
More broadly, Medef would like to reform SMIC altogether, revising it annually and giving responsibility for its revision to an independent commission that would link increases to productivity gains made by low-skilled workers.
Mr Kessler stated that it was time to clarify the SMIC's function, after some 32 years of existence, and to make the distinction between incomes policy, which is a government prerogative, and employment policy, which falls into the remit of the social partners and companies.
For the government's part, social affairs minister Franois Fillon emphasised that the CES analysis will provide the basis for government policy on the harmonisation of the SMIC. He conceded that the 35-hour week legislation contained errors that have given rise to a lack of transparency and bureaucracy. In particular, Article 32 of the law has resulted in multiple monthly, rather than hourly, rates being created which, he admitted, was not fair on employees and also complicates wage negotiations. He stressed the need for speedy action on the part of the government.
As EIRR goes to press, Mr Fillon confirmed an intention to harmonise all minima in four stages by 1 July 2005, contained in a decree which will form the basis of new legislation in October. The decree also simplifies current provisions relating to overtime premia, effectively relaxing provisions governing the 35-hour week.
All trade unions involved in the formulation of the report (CFDT, CFE-CGC, CFTC, CGT, and CGT-FO) have expressed their preference for immediate or staged convergence options, calling for an upwards harmonisation - or the adoption of the highest levels of existing minima. They have also highlighted the importance of reinstating the principle of equal pay for equal work.
On an individual basis, the CFDT has expressed its concern at the unequal treatment of workers that has come about through the implementation of the 35-hour week and expressed its preference for the staged convergence scheme outlined by the report.
The CFE-CGC favours a rapid progression to a unitary SMIC, advocating the alignment of the monthly guarantees to their highest level. In addition, the CFE-CGC group suggested abandoning the SMIC as a universal minimum wage and introducing an intersectoral minimum wage, the salaire minimum interprofessionel plancher - SMIP, for certain categories of employee including blue- and white-collar workers, technicians, supervisors, engineers and management (cadres).
The CFTC, CGT and CGT-FO all favoured the "immediate convergence" option. The CFTC advocated not changing the monthly guarantee and embraced the principle of a speedy adoption of the highest hourly SMIC rate. The CGT, however, acknowledged that an immediate increase of 11.4% was unrealistic and suggested that up to 6% of the increase could be created from increases in productivity and reductions in social security contributions. It highlighted the need for improving the situation for the lowest paid workers - in particular, the 93% of workers in the metalworking industry who earn less than the SMIC.
* "SMIC et reduction du temps de travail: des divergences a la convergence", by Jean Gautier, available online at: www.conseil-economique-et-social.fr/ces_dat2/2-3based/base.htm.
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A national minimum wage has been in existence in France since 1950, when the government set a guaranteed minimum wage (SMIG) - taking into account the minimum amount required by any employee to ensure a standard of living. In 1970, the SMIG was replaced by the SMIC. The idea of the minimum wage as a "subsistence-level" wage was replaced by the idea of it needing to remunerate employees for the productivity and growth generated by their work. The SMIC is paid at an hourly rate or a monthly rate calculated on the basis of 39 hours a week. Therefore, when weekly working time was reduced, this implied a reduction in the monthly SMIC. Article 32 of the law of 19 January 2000 (the second loi Aubry) thus created a system to guarantee minimum monthly wages for those employees whose basic working time was being reduced to 35 hours. These workers receive a guaranteed monthly minimum wage (garantie mensuelle de remuneration). This guaranteed wage comprises actual pay for a 35-hour week (or a 151.67-hour month, and a premium to make up for any pay lost owing to a cut in working time. The actual level of this guaranteed monthly wage depends on the date on which the move to the 35-hour week was made and the hourly SMIC rate in force at that time. The hourly rate of SMIC now only applies to those employees who still work 39-hour weeks, as well as certain categories of employee who are excluded from the monthly guarantee and who are paid only for the 35 hours that they work. These are employees of newly founded companies, employees newly taken on by companies that have already implemented shorter working time, as well as those workers who were not included in the coverage of the law, such as piecework employees working from home, caretakers and home helps. The resulting system is very complex, with multiple minimum levels that have accrued over the years. There are as many levels of guaranteed monthly earnings as there are years that the companies have implemented the 35-hour week. Further,
because of the premia included in the monthly guaranteed wage, the hourly
rate of SMIC is falling behind the monthly rate. At the time the system
was launched, it was estimated that, after five years, an increase of 20%
in the hourly rate of SMIC would be needed to achieve convergence between
the hourly and monthly guaranteed rates. As things stand, it is estimated
that an increase of 11.4% would be needed for convergence on 1 July
2003. |
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The hourly SMIC rate increased by 2.4% from 1 July 2002 and now stands at €6.83. The new minimum monthly rate for employees working a basic 39-hour week, or 169 hours a month, amounts to €1,154.27. For those working a 35-hour week, or 151.67 hours a month, it amounts to €1,035.91. The guaranteed monthly wage has been increased by 1.8%. The new rates vary according to when the company made the transition, and are as follows:
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