Minimum wage rise restores single rate but causes concerns

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The hourly rate of France's SMIC national minimum wage was increased by 5.5% to EUR 8.03 from July 2005. Combined with lower rises in the various special guaranteed monthly wage rates for workers who have moved to the 35-hour week, this means that there is now again a single SMIC rate, after several years in which a range of rates applied. The employment minister has asked for a report assessing the minimum wage by the end of 2005, raising concerns among trade unions that the current mechanisms for calculating and adjusting the SMIC may come under threat.

The government increased the hourly rate of the statutory national minimum wage (salaire minimum interprofessionnel de croissance, SMIC) to EUR 8.03 from 1 July 2005, equivalent to EUR 1,217.87 gross per month or EUR 957.74 net per month, for a 35-hour working week.

The 5.5% rise in the hourly SMIC rate does not concern all minimum wage earners, only those in companies that have not signed agreements introducing a 35-hour working week, together with some part-time or newly-hired workers in companies that do have a 35-hour week. This means about 1,530,000 out of a total of 2,360,000 SMIC recipients. The remaining 830,000, covered by the 'guaranteed monthly wage' (garantie mensuelle de rémunération, GMR) scheme, will receive rises ranging from 1.7% to 3.3%, with the effect where there will now be only one single minimum wage rate (FR0408102N).

The GMR scheme (FR0504103S) was put in place at the same time as the 'Aubry laws' on the reduction of working time (FR0001137F). The aim was that minimum wage earners moving to the 35-hour week would not suffer any loss of income on account of their earnings falling proportionately to the fall in the duration of the legal working week. Under the scheme, minimum wage earners moving to the 35-hour week were paid the same as they had been for 39 hours, with any overtime paid additionally (FR9909105F). Prior to 1 July 2005, there were five different GMRs, corresponding to the same number of hourly wage rates, depending on when the employees in question switched to the 35-hour week.

The 'Fillon law' of 17 January 2003 provided for an end to this complex situation by progressively unifying the various hourly SMIC rates at the level of the highest (FR0209105F and FR0208102F). This has been achieved by the July 2005 minimum wage rises. Adjustments to the SMIC should now be subject to the usual rules once again. During the three years when the various SMIC rates arising from the 35-hour week were converging, the rules governing minimum wage rises were effectively in abeyance. In theory, this state of affairs should disappear on 1 July 2006, with the rules in force prior to the harmonisation process again coming into play (FR0007177N). According to these rules:

  • the rise in the SMIC cannot be less than half of the rise in the purchasing power of the average wage for blue-collar workers; and
  • if inflation breaks exceeds 2%, there must be a matching rise in the SMIC.

Reactions

The French Democratic Confederation of Labour (Confédération française démocratique du travail, CFDT) declared itself satisfied with the 1 July SMIC increase, but the other unions expressed discontent at what they see as an excessively miserly rise. 'We are anxious and angry', said Michelle Biaggi of General Confederation of Labour-Force ouvrière (Confédération générale du travail-Force ouvrière, CGT-FO), because the rise 'does not meet urgent social needs'. Maryse Dumas of the General Confederation of Labour (Confédération générale du travail, CGT) said that 'a 5.5% rise in the hourly minimum wage comes to EUR 0.40. That’s not going to make a real difference to purchasing power or improve the situation for the people involved, and for consumer spending and jobs'. Michel Coquillon of the French Christian Workers' Confederation (Confédération française des travailleurs chrétiens, CFTC) took the view that 'with statements from employers and some ministers claiming that the minimum wage is already costing too much and causing unemployment, wage earners are becoming increasingly exasperated'.

The Movement of French Enterprises (Mouvement des entreprises de France, MEDEF) employers' confederation, for its part, claimed that the SMIC at its new level was 'too expensive' and demanded that it be calculated on an annual basis, with long-service bonuses and the hardship bonuses linked to certain jobs included in the annual amount.

Gérard Larcher, the employment minister, stated that consolidating the various SMIC rates into one raised the issue of adjusting the minimum wage, and especially the way the increase is calculated: 'Of course the previous law comes into force again as from 2 July 2005, but that does not rule out a thoroughgoing and collective review of the minimum wage, involving all the social partners'. He added that he had asked the civil servant heading his Ministry’s industrial relations department to draw up a report, by the end of 2005, on what had happened during the convergence phase and 'think about the various elements that go to make up the SMIC'.

These statements worried some trade unions, which fear that this report might be an opportunity to challenge the current mechanism for indexing the SMIC. According to Maryse Dumas of CGT, 'the question now is: do we go back to the previous indexing rules or don’t we?' 'We have been given no assurances as to the return to the initial rules for increasing the SMIC,' said Michelle Biaggi of CGT-FO, adding that the statutory minimum wage 'is now a ceiling in a good many sectors, and MEDEF, that just wants to get rid of it, has been interfering with it for far too long'.

Commentary

There can be little doubt but that the mechanism for indexing the SMIC minimum wage is going to be a major issue in the coming months. There seems, however, to be little foundation for criticism that the SMIC costs too much.

Successive rises in the hourly minimum wage have not spread very much to other wages. Between 1996 and 2002, the median wage (at the exact mid-point in the wage range, with half above and half below) fell from 1.6 to 1.4 times the SMIC. In practice, rises in the SMIC have had virtually no impact on wages more than 1.4 times the minimum wage.

In addition, it is by no means the case that the burden has been borne by companies alone. The convergence of minimum wage rates has been almost entirely offset by partial exonerations in employers' social contributions on low wages. These exoneration schemes differed according to whether companies had moved to the 35-hour week or not, and they will also now be unified. All companies will enjoy partial exonerations on social contributions for wage-earners paid up to 1.6 times the SMIC. As far as those earning just the SMIC are concerned, the government has pledged total exoneration from employer’s social contributions.

This being the case, the unions would see any government challenge to the minimum wage as provocation, all the more so in a context where the rise in the purchasing power of wages is high on the industrial relations agenda since the protest movements and demonstrations in March 2005 (FR0504101N). Today, raising low wages seems rather to be a necessity, for reasons that are at once social and economic, insofar as it can help hold up demand which remains very slack. (Pierre Concialdi, IRES)

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