PARIS — The French unemployment rate ended last year at its highest level since 1999, the national statistics institute reported Thursday, underscoring the urgency of President François Hollande’s task as he pushes for a far-reaching labor law overhaul intended to encourage new hiring.

The jobless rate rose to 10.6 percent in the October-December period, up 0.4 percentage point from the previous quarter, the statistics agency, Insee, said, as gross domestic product shrank 0.3 percent amid government austerity measures. Almost 26 percent of young people were classified as jobless, Insee said.

The unemployment rate has risen for six consecutive quarters, putting pressure on public finances and turning an uncomfortable spotlight on the Socialist president’s campaign promise to get the labor market moving in the right direction by the end of this year.

The answer, the government hopes, lies in a “flexicurity” agreement signed Jan. 11 by employers and unions that would give companies more freedom to hire and fire. On Wednesday, Prime Minister Jean-Marc Ayrault’s cabinet endorsed the deal, and said it would present it to Parliament for approval this spring.

“This is a win-win deal for businesses that get into trouble, that have to reorganize,” Mr. Ayrault said, adding that the accord gives companies a tool other than layoffs for addressing their problems.

The agreement, which draws on ideas pioneered in Denmark, a country with one of the world’s most flexible labor markets, would probably not have been possible a generation ago, or even under Mr. Hollande’s predecessor, Nicolas Sarkozy. But several years of crisis and economic stagnation have led to an acknowledgement across most of the political spectrum that relatively high labor costs are making it harder for French workers to compete when jobs can easily be outsourced to low-wage countries.

Those concerns have been magnified by a recent diatribe against French workers by an American tire company executive, Maurice Taylor Jr., who said he would be “stupid” to invest in a French factory, and a call for a “competitiveness shock” from a former top aerospace executive, Louis Gallois.

Stefano Scarpetta, head of the labor division at the Organization for Economic Cooperation and Development, said the French appeared to be learning from the example set by Germany, where companies faced with a less rigid labor code have better weathered the recent crises and where unemployment, at 5.3 percent, is half the level in France.

“The lesson we learned from the German model is that by promoting internal adjustment in the firm you can reduce the impact of a shock,” he said. “The French agreement promotes that kind of adjustment.”

The Jan. 11 proposal would allow companies facing serious problems to negotiate with unions to cut working hours and wages for up to two years, reducing the incentive to lay off employees. That is particularly important, Mr. Scarpetta said, because tools like flex-time arrangements have allowed German employers to retain most of their employees by reducing the overall hours worked.

The proposal would make it easier for employees to be reassigned and would cap the amount that laid-off workers could be awarded by labor courts. Another area of major change would be the way in which layoffs are managed. Currently, companies announcing a major restructuring open themselves to time-consuming and expensive legal maneuvering. But in cases where unions oppose restructuring plans, the new accord would give companies the right to seek approval directly from government labor administrators, reducing the judiciary’s role in the process.

In exchange, employers would have to pay more of the health care costs for about 3.5 million, mostly lower-wage, workers. Companies would be discouraged from short-term hiring by a payroll tax surcharge, graduated downward as the term of contracts increased. Workers would gain seats on the boards of major enterprises. And those who were laid off would not lose their accumulated unemployment benefits as soon as they returned to work, as currently, giving them more incentive to get off the dole.

Despite the additional costs, the deal is widely backed by the corporate sector. Laurence Parisot, president of Medef, the main business lobby, on Wednesday hailed the plan as one that would help end “the divisions that for 40 years have limited France’s capacity to transform itself, to evolve, to rise to the challenges with which it is confronted.”

The question now, Mr. Scarpetta said, is how well it survives its trip through Parliament.

The principal opposition party, the center-right U.M.P., argues that the measures do not go far enough to unfetter employers, but many members are expected to support the plan provided it remains largely intact.

That support would be unnecessary if Mr. Hollande’s own parliamentary bloc were solidly behind the proposal, but there is unease among some of the government’s allies. The far-left leader Jean-Luc Mélenchon this week described the accord as “villainous” and accused Mr. Hollande of carrying through Mr. Sarkozy’s work. Perhaps more glaringly, two of France’s most militant unions — the Confédération Générale du Travail and Force Ouvrière — have refused to sign on, weakening the claim that it was made with the backing of workers.

Still, the unions have shown that they are prepared to give ground in the face of economic necessity. Force Ouvrière said Wednesday that it had agreed to restructuring plans at Renault that would allow the automaker to increase working hours, freeze wages and lay off workers.

In any case, Mr. Scarpetta said, “It’s already a good sign” that unions and employers have come this far. “It’s a step in the right direction.”

Article source: http://www.nytimes.com/2013/03/08/business/global/08iht-frenchjobs08.html?partner=rss&emc=rss