French business leaders urged the government to beef up a revised labor reform bill after pressure from unions and students forced it to scrap plans to limit severance pay.
But the new draft, presented to the cabinet on Thursday, was also criticized by students who said the remaining measures would still deny them the job stability enjoyed by previous generations.
"This version 2 has been totally sanitized," said Pierre Gattaz, the head of employer federation Medef which is pushing the government to cut the restrictions which make it hard for companies to hire and fire.
"We need to get back to the initial version which was ambitious and could have spurred confidence amongst employers," Gattaz told Radio Classique.
Despite the government backtracking on the most controversial aspect of the bill, thousands of students returned to the streets of Paris and other cities on Thursday.
One car was burned near Medef's central Paris headquarters while 57 secondary schools were barricaded by high school students, although that was fewer than during previous protests.
Speaking after she had unveiled the bill to cabinet, labor minister Myriam El Khomri said the protests showed that the Socialist government still had to convince young people that they would be the main beneficiaries of the reform.
Given the current difficulty companies have to reduce their workforces when they need to, many young people find it hard to get hired on permanent contracts and instead have to settle for highly flexible temporary terms which make it difficult for them to rent housing or secure a mortgage.
Business leaders say the initial proposal would have encouraged companies to hire more people since the cost of layoffs in a downturn would be more predictable, helping reduce an unemployment rate stuck above 10 per cent.
Last week, the story of a struggling lacemaker in the city of Calais pushed to the brink of collapse by the court-ordered reinstatement of five employees served as a reminder of the sometimes counterproductive impact of complex labor rules.
The new draft retains measures giving more flexibility to employers to agree in-house deals with employees on working time and less restrictive conditions for layoffs for economic reasons.
Parliament will start discussing the bill on April 4, with both left-wing rebels and reformists led by Economy Minister Emmanuel Macron seeking to modify it substantially.
A final adoption is expected in July.