Why France Has So Many 49-Employee Companies
businessweek.com
businessweek.com
Result? everyone from rich to poor evades taxes and the grey market is over half the economy, with (some say) 2/3 of unskilled workers being paid cash-in-hand, no questions asked.
Because customs charge a similar 60% on imports plus a 27% VAT on top almost everybody in the country buys stuff from smugglers, from shoes and clothes to computers and even cars. Piracy and counterfeiting are so out of control that some companies are shutting down, leaving people on the street.
So at the end that country losses more money and has an even bigger deficit than if they had much lower taxes, why? because evading taxes is hard and risky, you are not going to bother doing it if it barely improves your numbers.
But at 60% taxation you might go broke if you don't evade! see the problem?
Lots of policies are ridiculous, but others are far beyond that: unrealistic, you simply can't ask that much and expect the economy to keep going.
EDIT: if you want to know more about the anti-business craziness going on in Argentina read this http://bit.ly/lUbWOo
In Germany, it's law that 50% of a corporate board must be made up of labor. That's one of the reasons why their companies are doing so well right now, because they don't make the stupid decisions that American companies make when management is so far removed from day-to-day operations. Where we would fire 20% of a company during a recession, the German government gives the workers a day off a week and pays their unemployment, so that the people have money in their pockets to keep the economy going.
So the real problem here is that the French government didn't anticipate conglomerates of 49 person companies skirting the laws. The reason unemployment is high is DUE to these 49 person companies, not in spite of them. If they had 50 or more people, then labor would vote to hire more workers, which is precisely what management doesn't want. They are just like management here, they want less labor, working longer/harder hours for less pay.
For anyone reading this, I highly recommend watching Thom Hartmann on FSTV for 2 weeks (http://www.thomhartmann.com), and you'll never look at civics/history/politics the same way again. There is a whole other side to these issues that we just don't get exposed to here in the US. For as much as hackers complain about being marginalized in the workplace, it worries me that we seem to be so misinformed about the root causes of it and how to solve it.
There's a long way between that, the American system and the French system, and the Germans have only just become competitive after being almost stagnated for over 20 years, but of course you don't care about this little fact just the part that benefits your point.
And if success is everything then you must be totally cool with the Chinese work-till-you-drop way since it works even better than the German option.
However I don't, and unlike you I see overderegulation and overregulation in the same way: they are both bad for business because each benefits one side and one side ONLY.
You need balance, get it?
Add rampant inflation to that and it gets uglier, even aspirins are expensive over there.
I think you've misunderstood the nature of the debate. Nobody is claiming that people making more are paying less, at least not significantly so. The complaint is that some people who are making more have paid a lower overall rate.
Look at the results of the law--not the intentions. The article says France has 2.4 times as many companies with 49 employees than with 50. This labor code is preventing companies from expanding, and encouraging companies to create new jobs in other countries rather than in France. The effect it is having is to protect existing jobs at the expense of new ones, and is an overall net drain on the economy.
If they, as a society, have decided they want a social safety net, why not work on something like a guaranteed minimum income or a negative income tax system instead? Give them the money directly so the costs are transparent instead of this roundabout regulatory nonsense.
The can't-shed-employees meat of the article is:
Software maker Viveo Group, an arm of Geneva-based
Temenos Group, began the required talks with the workers’
council in February 2010 because it wanted to cut about a
third of its 180-member staff, according to court
records. Viveo offered employees a voluntary departure plan
in June of that year as the council dragged its feet on
evaluating the earlier proposal, court records show.
The workers’ council then went to court to block the
cuts. It won a ruling against the original plan in January
2011 on the grounds that Viveo was forecasting an
18 percent increase in sales, meaning its future didn’t
depend on the layoffs. France’s highest appeals court is
reviewing the decision and is expected to rule on May 3.
“What holds back hiring in France is the lack of clarity
on how to legally cut jobs,” says Déborah David, a labor
lawyer at Jeantet Associés in Paris who has followed
the case. If the decision is upheld, Viveo will have to
take back the workers and hand over two and a half years
in back pay, she says.
If they were great, skilled employees regretfully laid off out of economic necessity then why not hire them back now that business has taken a turn for the better?
The answer would seem to be that the company was not honest about their reasons for the layoffs. Either they used an excuse to rid themselves of undesirables and low-performers or they used the economy as an excuse to fire otherwise fine workers.
The greed of the company owners/directors/management is preventing them from expanding
You're saying the same thing, but blaming different people. But keep in mind that economic systems that blame owners of capital for everything, and place extraordinary burdens on them, have not historically been very good economic systems.
Obviously the law is producing unintended consequences if France is full of 49 person companies who only exist to skirt some regulation.
This is why I say the effects matter not the intent. The effect is--companies are expanding less and hiring less workers.
Whether that is caused by greed or not is moot. If the law didn't exist the companies would expand, since it does exist they won't. The motives of the company are irrelevant.
The end result of this law will be less economic growth for France. If the desire is to build a social safety net, why not tax some of the extra economic gain that will result from fewer labor regulations and give the money to the people directly?
It happened to me and I have no hard feelings about it at all.
Without the requirement that 49-worker-plus enterprises have worker councils, most employers would squash them if at all possible, and there would be no one to negotiate humane layoff terms for the people being jettisoned.
I don't understand why a severance package should be something subject to negotiation.
Write a law with a very simple function of years of service, pay and age and let that spit out a number. Done. No time and money wasted negotiating, employers and employees know what they're getting.
When I was let off in 2009, I basically wasted 4 or 5 months at my old job waiting to get fired because the law required that much time for a collective termination. The outcome of that "negotiation" was not different than it was at day one, so I just don't get it.
AFAIK, that's how they do it in Denmark. It's very easy to fire people (and therefore easy to hire them), but the taxes are very high, so the government has enough money to provide social security for the ones who have lost their jobs.
Are you saying that companies finding legal ways around an tax system is a cultural thing and not a product of a system?
For example, the actors being companies with a predictable self interest playing within an incredibly complex tax system that is easily gamed if you can afford lawyers and accountants.
Weaken employee protections and social responsibility provisions and large numbers of the older, higher-paid workers will likely be replaced by lower-paid younger workers. Neither the still-employed non-youths nor the newly-employed youths nor the eighty percent of youths who had jobs will have any job security anymore.
That doesn't sound like a societal win at all.
The people pushing the youth unemployment figure don't actually care about youth unemployment. The point is to beat everyone over the head with that figure to get them to agree to stripping everyone's worker protections away.
Now relax the assumption. At employee 50, you have to start complying with a bunch of onerous and expensive regulations. This limits your ability to make profits and to continue growing your business—which, among other things, means being able to hire fewer workers and having to pay them less. The magnitude of the effect is less than that of the forced-charity sale, but the sign is the same.
These kinds of laws are based on a fallacy: they assume that the interests of companies and employees are not well-aligned. What is worse, such laws guarantee misalignment—thus exacerbating the very problem they're (ostensibly) meant to ameliorate. In medicine, this is called iatrogenesis. Did the bloodletting not work? That must mean we need more bloodletting!
These laws also create a decoy, which has effectively distracted you from the real enemy. The object of your ire should be boneheaded labor laws, not the "greedy" corporations trying to evade their restrictions. It's a diabolically clever political strategy, and it ensnares many a well-intentioned voter. But it's never too late to escape the trap.
Obviously, it's difficult to buy into the idea that employers' and employees' interests are aligned when business owners recoil in horror at the notion of having to meet once a week with the equivalent of shop stewards and bridle at having to explain why they need to lay off chunks of their workforce on short notice.
Great, then be a responsible entrepreneur and don't try to slither through every crack in every law designed to keep the society that your kids will grow up in healthy.
If you would like to see the terminal state of a laissez-faire society, you can visit Hong Kong. More luxury cars on the road than anywhere else you'll ever see and plenty of the toothless, recyclables-scavenging senior citizens that I referenced earlier as well. Hundreds of thousands of people living in literal wire mesh cages because that's all that they can afford. A wealth gap that yawns like a chasm.
It's easy to advocate policies when you think that you'll never have to actually submit yourself to living in the society that those policies will ultimately create.
B: I employ no more than 49 people in each of my companies and start new companies as necessary to avoid sharing profits with my employees, having to deal with worker councils, and the like.
Playing corporate twister to evade the clear intent of laws sure seems like loophole exploitation to me.
In addition to working around the intent of laws that empower workers, organized groups of business owners are constantly trying to overturn those laws and, in the meantime, discourage enforcement.
1) pay a couple lawyers $300k to minimize taxes
2) pay the government $1 million
Both are legal. Choose one.
How are we supposed to ascertain the difference between a loophole that we should pretend not to notice, versus an engineered incentive, where the regulators are intentionally giving us a nudge to behave in that way?
Use empathy.
(1.) Imagine that you are one of the people who are going to be affected by your decision. Better yet, imagine that your parent/spouse/child is the one going to be impacted.
(2.) Next, assume that the law was crafted with the best interests of society at heart or, if it's a flawed law, try to reason out the intent assuming that the author was someone with empathy.
(3.) Try to cause the greatest good or at least minimize the harm of the action that you're about to take.
It's sad that it's so easy for the proverbial one percenters to get everyone else, who should know better, on board with their agenda.
Rather than copy and paste, I refer you to:
There's also nothing stopping the companies from outsourcing non-core work to other 49-person companies. Seems like there's a lot of market opportunities that entrepreneurs aren't taking.
The problem with such stringent firing laws is that they only give security to the people who are currently employed. However, they do not necessarily benefit the society, i.e. new workers won't be hired when they're needed, and companies won't expand, and the economy won't develop as rapidly, simply because it's too hard to fire someone when you don't need them anymore.
Maybe the details don't work out well. Perhaps 50 is too small. There are probably other issues in the details, but in principle, it seems interesting and useful.
That's an interesting idea, but mostly unnecessary - in most economies, the majority of the economic output is produced by "small companies" (including contract workers), so such incentive does not seem to be needed.
And if it were needed, you shouldn't encourage the existence of small companies by preventing the successful companies from growing larger, but by enabling entrepreneurs with setting up new companies without much hustle! By effectively imposing a limit on the company size, you just incentivize business owners to bundle up a bunch of small companies (as you correctly noticed in your original post), however, that is a purely bureaucratic dead-weight cost to the employer, and therefore to the employees and to the society, that produces no actual value, only takes it away! No wonder lawyers thrive in this environment!
Take toy manufacturers for example. They must send there products to an independent lab to have it certified lead free. The guy in his basement making kid size rocking chairs and selling 50 per year has a much harder time paying this, than Mattel. The end result is a tend towards larger companies who can better handle the regulatory burden.
Your fact contradicts your point. Productivity-per-worker is enormously higher in small companies. If a country could get all its workers working in small companies rather than most of them wasting their abilities in large companies, imagine how much more productive it would be.
>By effectively imposing a limit on the company size, you just incentivize business owners to bundle up a bunch of small companies (as you correctly noticed in your original post), however, that is a purely bureaucratic dead-weight cost to the employer, and therefore to the employees and to the society, that produces no actual value, only takes it away!
Successful companies would just go ahead and actually split into smaller companies - unless you're scrambling for every cent, the costs of the duplication involved are pretty minimal, and the benefits can be huge as the income from more successful projects is reinvested rather than being used to prop up failing ones. It may hasten the demise of some zombies, but that's no bad thing.
Also, 5000 workers might be less efficient (per head) than 50, but at least you know that if 10 are missing (sick leave/vacation/...) at any given time, your production will continue uninterrupted.
Growth seems to be the measure of success, both for investors and entrepreneurs, so I don't see this stopping any time soon. But imagine a world where, once companies got to the 20-50 person stage, they started paying dividends rather than expanding. There are probably other limiting factors, but if everyone was working in such a company and they were as successful as they are now, productivity would skyrocket.
Hell, even the IT department has gone this route where your division has to license an exchange or IMAP server through the IT department.
A few advantages, off the top of my head:
* more market diversity (e.g. more niche offerings)
* less consolidation of power (e.g. Apple / Oracle / Google / Microsoft, etc)
* more social incentive to reduce corporate-to-corporate transaction costs
* improved specialization
* increased competition
* development of new market sectors
Currently, small companies don't work as well as big ones because of the transaction cost overhead. It seems to me that if a society could reduce transaction costs between corporations, better services and more specialization could emerge.
In my experience, small groups are more agile and able to do an incredible amount of work. Why do you need 1,000 - 100,000 people in one company?
I find all the reactions in this thread about how we should "just remove all those silly laws and the unions and let the good job creators do what they want and everything will be great and everybody will have a job" a bit naïve, to say the least.
The problem is complex and global, the "49 employee company" is just a red herring.
After the owners of the Lejaby lingerie factory in
Yssingeaux won court approval in January to fire about
half their 450 employees in France and shift production
to Tunisia, the company found itself thrust into the
center of this year’s campaign.
To some extent, other former colonies like Senegal and Madagascar profit from this too, but they're much farther away from France than Tunisia and Morocco (which are 2 hours away by plane and 24 hours away by boat) and have much less infrastructure to support industrial development (such as roads, ports and a decent electrical grid).
If fired with a sensible (defined by law) severance package, then absolutely not.
These rules made much more sense when they came into application mostly during the forties. Back then, just after the war, there were good reasons to be wary of the industry owners, who massively "collaborated" with the Germans (because you know, business is business), and deem them guilty until proven innocent.
Tired of delays in getting orders filled, Pierrick Haan,
CEO of Dupont Medical (not to be confused with chemical
company DuPont (DD)), decided last year to return
production of some wheelchairs and medical equipment to
France. The 150-year-old company, based in Frouard in
eastern France, created 20 jobs making custom devices at
a French plant—and will stop there. Faced with France’s
stifling labor code, Haan probably will send any
additional production of standard equipment to what he
calls “Near France”—Tunisia, Bulgaria, or Romania. “The
cost of labor isn’t the main problem, it’s the
rigidities,” Haan says. “If you make a mistake in your
hiring plans, you can’t correct it.”
The company is based in France and the fact that it had to move its manufacturing back to France constitutes an admission that the French workers are more productive than the previous batch of non-French workers.
The manufacturing jobs that this company is going to create in what Haan ludicrously refers to as "near France" (developing economies where labor is much cheaper -- but Haan isn't chasing cheaper labor, oh no) will be lower-skilled and/or that the resulting products will be labeled "Made in France" because those twenty workers in France were made to breathe on them or affix stickers to them at some point?
I did work as a junior mechanical engineer in both French and Eastern European manufacturing plants, small and large. In my experience, labor is equally or even better skilled in Eastern European countries than in France. Since we're talking about trained workers, not qualified professionals, productivity is much rather a function of the skills of the management than the skills of the workers. Generally, small ateliers is France can be more productive than the large factories of companies such as PSA Peugeot Citroën. I have noticed no such correlation in Eastern European factories.
They weren't being paid the same wages, were they?
I'm doubtful that the workers in the Eastern Euro locations truly were as skilled as their French counterparts because I have heard the same said by suits w/re to US workers and workers in various parts of the Far East and have had the opportunity to visit manufacturing locations in both and it never turned out to be the truth.
Also, with regards to productivity of an enterprise being a function of the management, I would say that poor management is certainly capable of driving worker productivity into the ground but that the most can-do, gung-ho managers in the world cannot do much with low/un-skilled workers.
It sounds like you're pretty convinced that non-western workers are less skilled so there's no point me commenting on that, but I'll try. People want to be doctors, engineers and lawyers, not lathe operators or metal workers. Training low skilled labour is really not that difficult, it's just that in more developed economies anyone who's at least a bit good at anything has the opportunity to find a better career, which is not necessarily true in less developed countries. In those countries, more skilled or competent people end up doing manual jobs simply because of the lack of opportunities.
Managing low skilled labour is very different from managing highly qualified professionals. These workers (whether French, Bulgarian, American or Chinese) typically can't work independently in an efficient manner and need constant supervision and micro-management, that's what foremen are for. Basically, if you want your factory workers to be productive, you have to run your factory as a Nazi labour camp. (This is obviously an exaggeration but you get my point.)
That leaves low/un-skilled workers behind.
Both Romania and Bulgaria have been in the EU since 2007 and in two more years (2014) workers from those countries will be able to work in France without a permit. Romanian and Bulgarian workers can already work in many other Eu countries without those permits, so how many highly-skilled workers do you really think there are just kicking around in their home countries waiting for someone to come in an employ them at a wage much, much lower than they would earn if they took a train ride to another, neighboring EU member state?
In other words, so much for the idea of teeming masses of highly-skilled workers in low-wage countries clamoring to be underpaid.
That leaves us with the low-skilled, unmotivated workers who, as you said, need to driven practically like slaves (and worked much, much longer) to approach developed-world levels of productivity.
That doesn't sound very alluring.
Instead, edit your comment to add updates.
I am quite clear on the overall message of the article. I think you get the point of it as well but you're intelligent enough to not bother trying to defend the indefensible, so you complain about me and ad-hominem me as a fanatic.
The gist of the article is that many French business owners are willfully weaseling out of meeting their social obligations as set forth in the laws of the society in which they live and run their businesses.
There's really no way to put a pretty face on that. It is what it is.
It's explicitly stated in the article that the people in question are keeping the headcounts at their enterprises artificially low by starting multiple 49-person companies and, in other cases, by farming out the low-skilled bits of their process to countries with much lower wages and much weaker worker protections specifically because of wage and workplace rule differences.
The best justifications that the businesspeople quoted in the article can come up with is that they don't want to have to see their workers' reps every week, that it's a pain to ensure that their HR people are aware of periodic changes in social security witholding rates, and the like.
They are eerily silent about profit-sharing, which is one of the responsibilities that they are evading, and evidently none of them had the stomach to try to explain why it would be a good thing for society for them to be able to suddenly lay off large numbers of employees without having to provide any sort of justification.
Work is not a right, it's a privilege. Moreover, it doesn't exist in a vacuum. We live in a globalised world where if you're not competitive on the world scale, you're dead or dying. Laws that severely constrain firing make french companies uncompetitive.
I recall a news story about an entrepreneur who had to lay off 25 of his 125 employees because there wasn't enough revenue. As someone who has laid off people before, I can guarantee you that he sweated blood before coming to this decision. So what did his lovely remaining employee do in response? They went on strike.
My reaction to this would be: "Oh really? Then I'll shut down the business and move to another country."
You're a fucking fanatic. That's why you've been downvoted all over this thread. Grow up and learn that the socialist-fanatic point of view is not the only one (not even in France).
I'm someone who currently lives in the sort of society that I suspect you would build given a chance ... whereas you seem to live in the UK and, as you mention, have a residence in France and Swiss citizenship. Better yet, I live on the very edge of the developed world smack dab next to one of the places where dangerous and low-skilled, low-wage work gets done in your "globalized world".
I also own and run a business that employs people and I manage to do it without behaving like a 19th-century robber baron or whining about not being able to treat everyone around me like Bob Cratchit or some other poor, downtrodden SOB in a Dickens novel.
To the extent that I have been down-voted, it's because HN posters skew to a younger, less-life-experienced demographic ... or self-deluded wannabe tycoons like yourself -- who don't see the idiocy in lecturing someone with many years of experience of having their boots on the ground in a near-laissez-faire environment in the developing world from a comfortable perch in a developed economy where the negative effects of your sociopathic tendencies are at least somewhat restrained.
At any rate, I appreciate the few moments of entertainment that your mouth frothing has given me.
> At any rate, I appreciate the few moments of entertainment that your moth frothing has given me.
These are not needed and are offensive. Please would you consider striking them, especially the psychological problems? Using mental health problems as an attack is not acceptable.
> To the extent that I have been down-voted, it's because HN posters skew to a younger, less-life-experienced demographic ... or self-deluded wannabe tycoons like yourself
You might want to think a bit more about why you're getting downvotes.
As I said, I'm getting downvoted here because, in general, the postership skews towards younger, sheltered types with relatively little life experience. Then there are some slightly older folks who have gotten some experience under their belts but who are convinced that if they could just treat everyone else and society at large worse, they could scramble up over them and declare themselves kings of the hill.
The end result is that HN sometimes ends up being a venue for people who have grown up in privileged situations in developed countries, benefiting enormously from social safety nets whether they're conscious of that or not, to gnash their teeth over not being able to tear apart those same social safety nets.
They don't seem to grasp that, if they had grown up in the sort of place that they want so badly to create, they themselves would likely be stuck on the bottom couple of rungs on Maslow's hierarchy of needs, preoccupied with just earning enough money to feed, clothe, and house themselves. They aren't even eager to go and live in places like their dream kingdoms, because those other swashbucklingly entrepreneurial places aren't as nice to live or raise families in as the evil socialistic, freedom-destroying places that they currently live.
This is the problem right here. It doesn't give the business owner the freedom to fire bad workers easily.
It's funny because unions are mini versions of France (and they come with all of the same problems).
So if after 7 months you suddenly realize that you've hired a bad worker, you're doing something wrong.
Being able to fire people easily is good for the business owner but bad for the employees. That's part of the reason unions exist and are useful.
This line of thinking has ruined the auto industry in the US and it's one of the the reasons we have a terrible education system.
If I have a bad worker (even after 7 months), I should be able to easily get rid of them (with cause). As a business owner, I shouldn't have to waste my time going to court or having some sort of 3rd party vote on whether I can fire them or not.
Businesses will never thrive in this sort of environment.
An employment market with too few workers (where it's easier to find a job) is good, but isn't enough if all the jobs require 14 hour days, working with deafening machinery with little to no safety equipment or training, for paltry wages.
Now, if we're honest, modern unions work for all of those things too, even if major unions are sometimes seen in less positive light sometimes.
What you really mean is that you want to be able to get rid of employees if you don't need them anymore or if you can find cheaper employees (for instance overseas).
That means more precarity, lower wages, less employment for women and older workers for instance. And don't tell me that it'd be easier to find a new job if you get fired and that everything evens out: most jobs flee towards developing countries these days, so it's not a zero-sum game.
Not only that, they are trying to solve the job problem by just adding a bunch of jobs to the government dole.
Eventually, this will catch up to them and it won't be pretty. I just hope the proper people are blamed and they learn from their mistakes.
“For the 100 employees we have in France, we have 10
employee representatives, for whom we have to organize
weekly meetings even when there is nothing to discuss,”
Haan says. “Every time a social security contribution
changes, which is frequently, we have to update software
and send our HR people for training. We can’t fire anyone
without exorbitant costs.”
Then, he complains about having to tweak their payroll/withholding software and send the HR folks for training.
He must shed actual tears when regulatory agencies in the countries he sells his products into change the requirements that affect the design and source materials so that he has to have them tweaked or even redesigned from the ground up.
Sociopathy in management/leadership is a very real problem.
He's not complaining about having to tweak his accounting software - he's complaining about having to do that frequently, and seemingly without any good reason.
Usually, when regulatory standards about material products change, they change for good reasons - e.g. poisonous plastics in children's toys. Anyone can understand why such changes are needed. However, if you're changing this or that detail of a country's tax code, without any good motive (i.e. when the politicians are obviously just picking up the low-hanging fruit to please the superficial (majority of the) public, but allow the deeper, structural problems in the economic incentives to persist), you just incur an unnecessary cost on the companies!
Kinda reminds me of the "menu costs", an implicit cost associated with inflation, which is the cost of reprinting the restaurant menus when the prices change too much. An economic cost that exists because of the inherent inefficiencies of our system.
W/re to "menu costs", if you're running a restaurant in Weimar-era Germany or some other milieu where hyperinflation is running rampant, then maybe you'll have to use xeroxed paper menus for a while. Obviously the cost of reprinting your menus is not going to be your chief problem. Under normal conditions, "menu costs" and the like (reconfiguring software to increase or decrease workers' social security contributions) is not going to be a business-breaking expense.
Pretending that it's such a hassle that it will drive him to madness or sink his business is ridiculous.
Somehow, inexplicably, these pernicious overheads never manage to take a significant toll on of executive compensation, perks, and the like.