SMIC debate gathers momentum

Download article in original language : FR0208102FFR.DOC

Since the implementation of the legislation introducing the 35-hour working week, France's SMIC national minimum wage has had a number of different rates. The debate over how a single SMIC rate is again to be achieved continued throughout summer 2002, with the Economic and Social Council issuing its opinion on the matter in July. The Minister of Social Affairs, Labour and Solidarity, François Fillon, then outlined his proposals for resolving the SMIC issue, as well as for lowering employers' social security contributions, which will be officially presented in the autumn.

From 1 July 2002, the new conservative government led by Prime Minister Jean-Pierre Raffarin raised the national minimum wage (salaire minimum interprofessionnel de croissance, SMIC) by 2.4% for those workers still on a 39-hour week (FR0207105F). This rise represented the minimum increase provided for under the law (linked to movements in inflation and purchasing power), as the government decided not to grant a discretionary extra 'boost' ('coup de pouce'). The increase in the SMIC for workers in companies that have moved to a 35-hour working week was only 1.8%.

The Minister of Social Affairs, Labour and Solidarity, François Fillon, stated that the government's decision not to grant a 'boost' on this occasion was reached 'on a provisional basis, pending a decision on the convergence of the various rates of the SMIC'. The decision provoked heated responses from trade unions and employers. The problem is how to turn a number of differing minimum wage rates which have arisen due to the application of the legislation on the 35-hour week (see below), into a single minimum wage (FR9907101N, FR0007177N and FR0107171F).

In June 2002, the Prime Minister requested the Economic and Social Council (Conseil économique et social, CES) (FR9910115N), to conduct a study to 'diagnose the economic and social consequences of the multiple SMIC levels, and produce an inventory of potential solutions aimed at rationalising the minimum wage'. The CES adopted its opinion on the the issue, entitled 'The SMIC and the reduction of working time: from divergence to convergence', SMIC et réduction du temps de travail : des divergences à la convergence), on 10 July

CES opinion

After a brief historical overview of the minimum wage in France, the CES opinion sets out the statutory context for the minimum wage since the adoption of the 'Aubry' laws on working time reduction (FR0001137F). This legislation introduced a new scheme for employees paid the SMIC in companies which have switched to the 35-hour working week. To prevent the wages of these workers falling on a pro rata basis as statutory weekly hours were cut (ie having their weekly pay fall from 39 times the hourly SMIC rate to 35 times this amount), the scheme sought to maintain their pay levels through a 'guaranteed monthly wage' (garantie mensuelle de rémunération). This means that when they switch to the 35-hour week, employees on the SMIC are paid the wage that they would have received if they worked 39 hours.

However, the 'guaranteed monthly wage' rate rises more slowly than the hourly SMIC rate, as the latter is based on an indicator derived from variations in hourly rates of pay, while the former is based on changes in monthly pay rates. 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. Furthermore, the law does not provide for the guaranteed monthly wage to be afforded the occasional 'boost' granted to the hourly SMIC rate. There has thus been a growing and variable gap between the hourly and monthly rates of SMIC, depending on when employees move to the 35-hour week. In this 'multiple SMIC' system, there are thus various minimum monthly pay rates. The earlier employees switched to the 35-hour week, the lower their guaranteed minimum wage - because this wage depends on the monthly rate of the SMIC in force on the date of the relevant agreement to move to the 35-hour week, and thereafter rises at a lower rate than the hourly SMIC rate.

The outcome is a complicated system which has meant the co-existence over several years of different monthly minimum wage rates. For several years, trade unions and employers' associations have been criticising this system on a regular basis. It has raised problems for human resource management, pay bargaining has become even more complex, and it has led to unequal pay for employees doing the same work.

In its opinion, the CES floats several scenarios whereby a single level of SMIC can be achieved:

1. postponing the expiry of the current system beyond 2005, ceasing to create new guaranteed monthly pay rates after the SMIC increase awarded from 1 July 2002, then harmonising these rates by 1 July 2005 and eliminating this single guaranteed monthly pay rate by 1 July 2009. According to the CES, the drawback of this type of solution is that it will prolong wage moderation and pay inequalities between employees until 2009;

2. ceasing to create new guaranteed monthly pay rates after the SMIC increase awarded from 1 July 2002, and 'freezing' the last rate until its abolition (two deadlines are considered - 1 July 2005 or 1 July 2007). This method would limit the necessary 'boost' of the hourly rate of SMIC (either in 2005 or 2007), though on the other hand, it would lead to the recipients of the guaranteed monthly pay rate suffering a considerable loss of purchasing power; and

3. arrange rapid convergence (immediate or step-by-step). This would be possible as early as 2003, by bringing the various guaranteed monthly pay rates into line with the highest one, and simultaneously introducing an 11% increase in the hourly rate of SMIC on 1 July 2003. However the process could also be staggered until 2005, by bringing the various guaranteed monthly pay rates into line with the highest one, raising the hourly SMIC according to the statutory provisions, and also providing successive 'boosts' of around 3% per year to the hourly rate from 2003 to 2005. This type of solution would raise production costs in companies that have not yet applied the 35-hour week, but could be supplemented by measures reducing social security contributions for the industries and types of company hardest hit by such production cost increases - eg very small businesses, the not-for-profit sector, retail and wholesale and the farming and food production industries.

In this inventory of solutions, the CES prioritises those outcomes that ensure that the purchasing power of the lowest-paid employees continues to rise, while keeping the businesses concerned in a healthy financial state.

This opinion was passed by a large majority. Of the 175 members of the CES, 149 voted to adopt it, 20 voted against and six abstained.

Social partners' views

The trade unions represented on the CES all voted for the opinion. Of the employers' representatives, the crafts industry group (the Craftwork Employers' Association [Union professionnelle artisanale, UPA]) voted in favour of the opinion, along with the agriculture group (which represents, among others, agricultural enterprises with employees) and most of the state-owned companies (with the remainder abstaining). However, the CES private sector business group - comprised of the representatives of the Movement of French Enterprises (Mouvement des entreprises de France, MEDEF), the General Confederation of Small and Medium-sized Enterprises (Confédération générale des petites et moyennes entreprises, CGPME) the Young Entrepreneurs' Association (Centre des jeunes dirigeants, CJD) and the French Chambers of Commerce Federation (Assemblée des chambres françaises de commerce et d'industrie, ACFCI) - unanimously opposed the report.

When the opinion was requested, the private sector companies group wanted the entire system governing the minimum wage to be thoroughly overhauled. It believes that there are two separate components of the minimum wage in France; one is wholly wage-related and is the responsibility of businesses and the social partners; and the other is part of the state's incomes policy, which represents an expression of collective solidarity. The private sector companies group advocates the annualisation of the SMIC (calculating it on a yearly, rather then hourly or monthly basis), and a system of increases that would not be left to the government's discretion but would be set by an independent committee and based on productivity gains achieved by the least qualified workers. The private sector companies group also wants the component of the current SMIC that it regards as reflecting state incomes policy no longer to be borne by business, preferring that the state use other instruments (such as employment incentives or negative taxation) without interfering in pay setting.

Minister's initial proposals

In an interview published in the Journal du dimanche newspaper on 28 July 2002, the Minister of Social Affairs, Labour and Solidarity, François Fillon, announced sizeable reductions in social security contributions for companies as a trade-off for commitments by employers' associations to reopen pay negotiations at sector level, and on overtime, both of which have long been called for by the unions.

The various existing reductions in employers' social security contributions amounted to around EUR 15 billion in 2001. Minister Fillon is proposing to raise this overall amount significantly and to simplify the rules governing entitlement, in order to reduce labour costs as well as 'to compensate for the harmonisation of the various levels of SMIC'. At the same time, according to leaks reported in the press (in Les Echos on 30 July 2002), the harmonisation of the various levels of SMIC will be completed by July 2005, a deadline that was supported by a majority of the CES. The mechanism for achieving this return to a single level of SMIC appears to differ noticeably from the types of solution outlined by the CES: each of the monthly guaranteed wage rates will be granted different 'boosts' between 1 July 2003 and 1 July 2005. A bill is to be submitted to parliament in the autumn, and the SMIC proper, based on the hourly rate, will be increased by a total of 11.4% over the three-year period to 2005. The Minister's goal is to make the timetable for these progressive increases in the SMIC paid for by businesses, coincide with the reduction in the latters' social security contributions.

Reactions to the Minister's proposals

The reactions to Minister Fillon's proposals, made in the middle of the holiday season, have been measured and prudent, pending the unveiling of an official plan. The General Confederation of Labour-Force ouvrière (Confédération générale du travail-Force ouvrière, CGT-FO) has welcomed the plan to increase the SMIC significantly over three years, but reiterated the need to launch pay negotiations in all sectors of the economy. The French Democratic Confederation of Labour (Confédération française démocratique du travail, CFDT) has restated its desire to see a return to a single SMIC and sectoral pay bargaining. It has welcomed the objective of simplifying social security contribution reduction schemes, but that step, in CFDT's opinion, must go hand-in-hand with the introduction of trade-offs aimed at promoting negotiation between the social partners. The General Confederation of Labour (Confédération générale du travail, CGT) has been more critical, stating that 'in deciding to cut employers' social security contributions to offset the harmonisation of the SMIC, the Minister of Labour is trying to satisfy employers without them having to make any commitment whatsoever.'

For craft sector employers, UPA has stated that, 'both in terms of the cuts in employers' social security contributions and of the SMIC, the policy outlines announced by François Fillon are realistic and pragmatic, and echo the proposals put forward by UPA.'

Commentary

The debate on the ways to return to a situation in which there is a single level of SMIC has highlighted battle lines between the social partners and other relevant actors, with some employers' associations (mainly MEDEF and CGPME) opposed to all the trade unions, as well as certain other categories of employers (eg those in the crafts industry, agriculture and state-run companies) and now, it appears, the government. This is a situation which, in this post-presidential and parliamentary election period, is quite unexpected. (Maurice Braud, IRES)