Abstract/Summary

What explains the cross-national variation in unemployment rates over time? A vast literature in orthodox economics highlights the importance of Employment Protection Legislation for unemployment. Several studies argue that high EPL is associated with higher unemployment. This chapter focuses on the case of France where there is a long lasting concern that a ‘rigid’ labour market results in high unemployment, labour market dualisation and social exclusion. It analyses how the crisis has affected the French labour market and what labour market reforms have been implemented by governments during and after the crisis. France is often taken as an example that EPL leads to higher unemployment and that the appropriate solution is to deregulate EPL. By contrast, I argue that France’s labour market on average resisted well during the crisis partly because the crisis was less pronounced than in other countries and partly because EPL insulated large parts of the workforce from the economic shock. My findings reveal that workers with permanent contracts have been mostly protected from the crisis while the costs of the crisis have been concentrated on more vulnerable labour market groups. The young, foreigners, those with low education and on non-standard contracts have been particularly hard hit by the crisis. This resulting higher labour market segmentation occurred despite several attempts by governments to help outsiders and reduce labour market dualism, for instance by attempting to regulate non-standard work, introducing new in-work benefits, extending eligibility of unemployment benefits and subsidising the hiring of unemployed workers. Lowering EPL does not seem to have been an appropriate policy response to the crisis as it reduced neither unemployment nor labour market dualisation.