Two-tier SMIC challenged

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From 1 July 2001, the French government increased the hourly rate of the SMIC national minimum wage by 4.05%. However, measures introduced to protect the wages of employees paid the SMIC in the context of the current change from a 39-hour to a 35-hour working week, mean that SMIC earners who have already moved to the 35-hour week will receive a smaller rise, accentuating an increasing diversity in minimum wage rates. The emergence of a "two-tier SMIC" has been criticised by both trade unions and employers.

The government decided to increase the national minimum wage (salaire minimum interprofessionnel de croissance, SMIC) by 4.05% as of 1 July 2001, bringing its hourly rate up to FRF 43.72 (EUR 6.67), equivalent to a 1.8% rise in purchasing power. This increase basically corresponds to the minimum rise provided for under the law (linked to movements in inflation and purchasing power) - which is 3.75%. The extra optional increase decided on by the government (the so-called coup de pouceor "boost") is thus lower than 0.3% this year.

The latest rise has highlighted the complex array of wage rates now payable to those employees paid the SMIC, since the introduction of the legislation on the 35-hour week (FR0001137F). Indeed, the rise does not affect all those employees paid the SMIC, only those working in companies that have not yet signed an agreement on the changeover to the 35-hour week - ie around 70%-75% of current SMIC earners. For this group, monthly pay has, for a 169-hour monthly working time equivalent to a 39-hour week, thus been raised to FRF 7,388.68 (EUR 1,126.4).

Impact of 35-hour week legislation

The rise in the wages of the other workers paid the SMIC who have already switched to the 35-hour week will be smaller, at only 2.85%. These workers are part of a different system set up by the government under the second 35-hour week law (FR0007177N). To prevent their pay falling on a pro rata basis along with the statutory working week (ie having their weekly pay cut from 39 times the hourly SMIC rate to 35 times this amount), the government provided that those employees paid the SMIC who moved to the 35-hour week, would see their levels of pay maintained thanks to a system called the "guaranteed monthly wage" (garantie mensuelle de rémunération). Under this system, when they switch to the 35-hour week SMIC earners receive a salary equal to that which they would have received if they had worked a 39-hour week, with any possible overtime paid extra.

However, for employees in this category, the change in their pay is no longer directly tied to the variations in the hourly rate of the SMIC, but rather to the "guaranteed monthly wage" which, de facto, rises more slowly than the index used as the basis for raising the hourly rate of the SMIC. The difference stems from the fact that the calculation of the hourly rate of the SMIC is still based on an indicator derived from variations in hourly rates of pay, while the "guaranteed monthly wage" takes changes in monthly pay rates into account. With growing numbers of employees switching to the 35-hour week, this generally translates into a widening gap between the rises in hourly and monthly pay, as the former is increasing more rapidly than the latter. Besides, the law does not provide for the "guaranteed monthly wage" to be afforded the occasional "boost" granted to the SMIC calculated on an hourly basis. Hence the growing and variable gap between the hourly and monthly rates of SMIC, depending on when employees move to the 35-hour week.

Within this "two-tier SMIC" system, differing monthly levels of minimum wage thus co-exist. The "guaranteed monthly wage" is lower where employees changed to the 35-hour week early. This is because these workers' pay is maintained on the basis of the monthly rate of SMIC in force when the agreement was signed, and the rise in this monthly salary is thereafter lower than the corresponding one in the hourly rate. In practical terms, this means that the monthly minimum wage can now vary from FRF 7,092.27 (EUR 1,081.21) for SMIC earners who changed to the 35-hour week prior to 1 July 1999, up to FRF 7,303.77 (EUR 1,134.50) for those moving to the 35-hour week between 1 July 2000 and 30 June 2001. The difference between these rates and the monthly SMIC earned by employees still working a 39-hour week can thus reach almost FRF 300 (a little over EUR 45) per month. It is planned to close this gap progressively in order finally to arrive at a single rate by 2005, but the details of this transition have not yet been decided.

Social partner reactions

With the exception of the national secretary of the CFDT confederation Michel Jalmain, who deemed the increase in the SMIC "very substantial", all the trade unions have criticised the increase announced from 1 July 2001 as insufficient. CGT, which has been demanding a monthly SMIC of FRF 9,000 for some time, stated that the amount was "far off target", and its national secretary. Maryse Dumas, remarked that "this boost is the furthest below the average in the last 20 years." In the view of CGT-FO's Michèle Biaggi, the rise in the SMIC is "not high enough for the employees working a 39-hour week". The increase has also encountered criticism from employers. Didier Gautier-Savagnac of the UIMM metalworking employers' federation stated that the increase in the SMIC was "an economic blunder as far as business is concerned, and a social blunder as far as employment is concerned".

Employers and unions are however unanimous in their condemnation of the "two-tier SMIC system". The unions see it as an unfair and unequal system that the government should put an end to as quickly as possible. Employers feel that abandoning the two-tier SMIC is a necessary precondition for any negotiation on the possible increase in collectively-agreed pay rates, whose minimum levels are, in nearly 80% of sectors, below those of the SMIC.

However, the social partners' views diverge in terms of how to move on from the transitional measures currently in place, as evidenced by the recent initial meeting of a tripartite working group set up by the employment minister, Elisabeth Guigou. Employers seek, among other measures, the calculation of the SMIC on an annual basis, which would allow those bonuses paid at long intervals, which are currently excluded from the calculation, to be integrated into it. CGT and CGT-FO have suggested unifying the various guaranteed monthly wages rates on the basis of that in force on 1 July 2001, which would entail the equivalent of an 11.4% rise in the hourly rate of SMIC. For employees already working a 35-hour week, the increase in monthly pay would be a little over 1% or 4%, depending on the date when the 35-hour week came into effect in their company. For those yet to switch, this would mean that the changeover to the 35-hour week would be carried out without a drop in wages. However, the government opposes this proposal.

Commentary

Maintaining the status quo means more or less to transferring the cost of the transition to the 35-hour week to employees on the SMIC. It is unlikely, however, that the issue will be resolved before the presidential elections in spring 2002. Indeed, the government has committed itself only to presenting proposals on the issue to parliament before the end of 2002. Behind the issue of the "two-tier SMIC" looms the broader one of wages more generally. The policy of wage restraint implemented for nearly 20 years has made deep inroads into employees' purchasing power, which, for a given qualification level, has hardly increased at all over that period, with the exception of the past few years.

The dramatic rise in employment levels has indeed played its part in a certain improvement in purchasing power, but the proportion of wages in household incomes is still at a record low. In this context, raising low incomes might seem both a social and economic necessity, in that it may help support demand, which is being negatively affected by the slowdown in global economic growth. The economic impact would be low and it has already been absorbed to a great extent by the companies that have already changed over to the 35-hour week. Moreover, the proportion of labour costs paid to the least well-paid quarter of employees scarcely exceeds 10%-15% from one industry to another. An increase in the SMIC, even with effects on wage hierarchies among workers would, on the face of it, have a very limited impact on the growth of overall labour costs. Taking the current all-time high level of profits, it might be supposed that companies can afford to absorb the costs of this increase without risking sending inflation spiralling. (Pierre Concialdi, IRES)