ECO511 / Economics for Managers
Case 3 / Group 3
The 50th
Worker Problem
Labour market rigidities in France, and why one more hire can cost so much more.
Presented to Dr. Doaa Salman
Ahmed EhabAhmed ElsayedAnas YoussefMohamed MassoudSaid Gamil
50
the 50th hire
Cross fifty and the rules change: stricter redundancy procedures, greater representation rights.
Hire the 50th worker?
01 / The 50 Trap
49 workers. Orders booming.
YES
NO
At 50 workers: stricter redundancy procedures
Workers gain greater representation rights
So the 50th costs more than the 49th
Cost of the next hire
49th
50th
Stricter rules
+ representation
Illustrative, no scale
Three ways firms cope
01 / The 50 Trap
Stay at 49
Never employ a fiftieth worker, so the firm stops growing one hire short.
Growth stops at 49
Split in two
Two businesses doing the same thing under different names.
One firm, two names
Face the code
A labour code past 3,000 pages, and courts that often side with employees.
The courts decide
Every route bends the firm around the threshold. None of them makes hiring easier.
Redundancy, explained
02 / Why Flexibility
Redundant does not
mean useless.
The job disappears. You do not.
Redundancy
تسريح
The company no longer needs the job. In France that means strict procedures and often a court case.
Fired
فصل
The worker did something wrong.
Why it matters
Only the first one is a procedure firms must plan and pay for.
Slumps happen. Firms want options.
02 / Why Flexibility
Orders
Jobs, if laid off
Jobs, if hours cut
Slump
same team, fewer hours
jobs lost, then re-recruiting
Illustrative, no scale
Lay off, then rehire
Costly
Redundancy procedures now, recruiting and training later.
Cut hours or pay
Cheaper
Keep the team. Back to normal once the economy picks up.
Short-term contracts
Flexible
Easy to end when demand drops. Long fixed terms are in decline.
Other parts of Europe were hit just as hard but had lower unemployment. One suggested reason is exactly this flexibility.
Tax the short-term contract
03 / The Unions’ Case
Why it mostly works
Workers get more job security, and firms are nudged toward stable contracts.
The one caveat
Firms might hire fewer people overall, or find workarounds like staying at 49.
What the unions wanted
Fewer temporary jobs, and more that last.
Early 2013: the compromise
04 / The 2013 Deal
Government
Employers
Unions
After a long search for agreement
What firms get
Flexible working time and pay in a slowdown, then back to normal when the economy picks up.
What workers get
They keep the job and skip the cost and pain of searching for a new one.
The trade
Each side gives a little so the firm survives the downturn.
What if nobody had to stay at 49?
05 / What If
Fix 1
A slope, not a cliff
Today: a cliff
Our fix: a slope
Costs and rules phase in gradually after 50 workers, so the 50th hire is never a trap.
Fix 2
A deal before the slump
Deal
Slump
jobs stay
Agree flexible hours and pay in advance, so a downturn means fewer hours, not layoffs.
Firms can grow past 49. Workers keep their jobs. The trade-off is managed, not ignored.
A trade-off, not a villain
The takeaway
Stability
Protects workers with job security and a voice.
Flexibility
Keeps firms alive when demand moves.
The balance
The best deals, like 2013, give both sides a little.
Your turn: stability or flexibility, which would you pick for your own job?
ECO511 / Economics for Managers
Case 3 / Group 3
Thank you.
Questions, please. We will take as many as we can.
Presented to Dr. Doaa Salman
Ahmed EhabAhmed ElsayedAnas YoussefMohamed MassoudSaid Gamil
Source: Case 3, “Labour Market Rigidities”, Part 7: Factor Markets
50
the firm grew
With a slope instead of a cliff, the 50th hire is just another hire.