Renewal of unemployment insurance agreement

Download article in original language : FR0601105FFR.DOC

The three-year UNEDIC agreement setting out the rules governing the unemployment insurance joint management system is in the process being renewed. As was the case in 1993, only three of the five representative unions are expected to sign the agreement. The representative employer organisations have all endorsed the deal. The agreement contains the minimum stipulations but fails to address all the fundamental issues facing the unemployment insurance scheme.

Economic and social context

As was the case in 2002 (FR0301106F), talks on renewing the unemployment insurance fund (Union nationale pour l’emploi dans l’industrie et le commerce, UNEDIC) agreement have taken place against a backdrop of fiscal imbalance. The unemployment insurance fund posted a cumulative deficit of 14 billion euro in 2005, the deficit a result of the 2001 economic downturn. The drop in employment rates has had an impact in terms of unemployment insurance fund revenue, which is mainly generated through salary contributions. At the same time, it has driven up spending because of the flood of newly unemployed persons. The rise in the relative number of senior managers and employees over the age of 55 – mainly those earning larger salaries – who are claiming benefits is also responsible for part of the 2005 deficit.

The negotiations took place in a tense social climate resulting from almost continuous cuts in unemployment entitlement over the past 25 years. From one overhaul to the next, unemployment coverage rates, i.e. the number of unemployed people actually entitled to receive UNEDIC benefits, have remained low: the system provides benefits to only one out of every two jobseekers. The savings initiatives agreed to were only endorsed by three of the five representative trade unions: the French Democratic Confederation of Labour (Confédération française démocratique du travail, CFDT), the French Confederation of Professional and Managerial Staff – General Confederation of Professional and Managerial Staff (Confédération française de l’encadrement – Confédération générale des cadres, CFE-CGC) and the French Christian Workers’ Confederation (Confédération française des travailleurs chrétiens, CFTC). The General Confederation of Labour (Confédération générale du travail, CGT) and the General Confederation of Labour – Force ouvrière (Confédération générale du travail – Force ouvrière, CGT-FO) refused to sign the agreement.

Major provisions of the agreement

The savings initiatives, which are to take effect as of 1 January 2006, are mainly to be achieved by:

• raising unemployment insurance contributions. The unemployment contribution rate will be raised by 0.08 percentage points, shared equally between employers and employees. It will rise to 6.48% of gross earnings (4.04% for companies and 2.44% for employees). It is forecast that this increase will generate an extra 960 million euro in revenue for the fund;
• overhauling benefit categories by tightening eligibility periods. The French system calculates benefit eligibility periods according to the length of employment prior to unemployment. The present benefit categories were created in 1982. The new agreement does not amend the rules governing benefit entitlement as such, but it does reduce eligibility for the long-term unemployment scheme, known as stream B. This is the stream that concerns most people: it provides 23 months of benefits for individuals with 14 or more months of contributions. The insured will now be required to have paid contributions for 16 months before being eligible for this scheme. For those with fewer than 16 months of contributions, the benefit period will henceforth be reduced to 12 months in the newly created A category (see table).

It is estimated that the tightening of the prior insurance period will save UNEDIC 474 million euro over a three-year period. Unlike the overhaul undertaken in 2002 (FR0307102N), the new categories affect only those new jobseekers made unemployed after 1 January 2006.

Other more proactive initiatives designed to assist the unemployed in finding jobs have also been approved. These measures include:

• personalised support for jobseekers;
• job subsidies;
• a training entitlement for those made redundant when their fixed-term contracts expire;
• funding of costs incurred in validating job experience, with a view to promoting life-long vocational training.

The additional cost of these job-friendly initiatives is not yet known, but UNEDIC experts are estimating that their positive impact on getting people back to work will generate a net saving of 1 billion euro. This overhaul is predicted to save UNEDIC a total of 2.4 billion euro over three years. In the meantime, the success of the scheme also depends on an economic upturn (a return to growth and large-scale employment[amk1])[amk2]. These forecasts appear speculative and many experts believe that UNEDIC is in grave danger of seeing its deficit rise over the next few years.

Reaction of the social partners

While the three employer organisations (The Movement of French Enterprises (Mouvement des entreprises de France, MEDEF), the General Confederation of Small and Medium Enterprises (Confédération générale des petites et moyennes entreprises, CGPME) and the Craftwork Employers’ Association (Union professionnelle artisanale, UPA)) all signed the agreement, only the CFDT, CFE-CGC and the CFTC endorsed it on the union side.

The desire to reach a deal at all costs in order to save the joint management system from government intervention led to a bare-bones agreement, which failed to garner unanimous support among trade unions.

The CGT was critical of the deal, calling it a 'fool’s agreement'. In the union’s view, the majority of the savings will be 'generated at the expense of the unemployed and employees'. The CGT contends that the creation of the new A stream will adversely affect some 100,000 people, who will see the current benefit entitlement of 23 months cut to 12 months.

The CGT-FO played a major role in the negotiation process, attempting to stop any significant erosion of benefit coverage for the unemployed. Yet it declined to sign the draft agreement. The union is advocating penalties for companies that use large numbers of fixed-term contracts, and was calling for an extra 1.25% to be added to contributions paid by employers on fixed-term employment contracts. It was not satisfied on this issue.

Commentary

The new agreement, which was driven by the political imperative of safeguarding the joint management system, deliberately postponed the pressing major overhaul that is required. UNEDIC should move towards structural reforms that overhaul the organisation’s current funding model, a model based solely on employment contributions. Reform is also needed to provide better coverage for periods of unemployment. Indeed, nearly one in two jobseekers is shut out of the system. Jobseekers who have never been part of the workforce have no benefit coverage. Those employed in unstable jobs who have paid into UNEDIC for five months are also not entitled to benefits. As for the long-term unemployed, the cut in the benefit period will just push them onto welfare. Overall, the system appears to focus on and favour those among the unemployed who have lost long-standing jobs, which is most likely the reason why the agreement failed to garner the support of all trade unions. The lack of any strong consensus on this deal does nothing to lend legitimacy to the joint management of UNEDIC. The joint management system could emerge weakened from this latest bargaining process. (Carole Tuchszirer, IRES)