Paris ? President Jacques Chirac caved in to protesters on Monday, canceling a law on youth employment that fueled nationwide unrest and raising questions about France’s ability to reform rigid labor laws in a globalized world.

Unions declared victory, but energized students decided to go ahead with a “day of action” today to try to knock down other measures – designed to reduce the 22 percent unemployment rate among youths – that are viewed as threatening coveted job protections.

In an announcement that amounted to a humiliating admission of defeat, Prime Minister Dominique de Villepin said on nationwide TV that the contested measure would be replaced.

Chirac had ordered the pullback after weighing the results of talks with students and unions, the debilitating political fallout for the right and the danger of increasingly daring student protests on railroad tracks and highways.

The announcement was a personal blow to de Villepin, who was considered the president’s preferred successor for presidential elections next year. De Villepin designed the much-maligned measure and had dug in his heels to save it.

Chirac said the measure would be replaced by one directed specifically at disadvantaged youths, many of them living in housing projects in poor, mainly immigrant suburbs. It would beef up measures already in place, rather than enact new ones.

The government has brought overall unemployment down from 10.2 percent to 9.6 percent. But joblessness among youth stands at 22 percent, soaring to nearly 50 percent in poor suburbs. De Villepin looked to use the occasion to start whittling at labor laws that prevent French companies from streamlining and frighten some foreign firms from setting up shop here.

The rejected law would have allowed employers to fire workers under the age of 26 at any time during a two-year trial period without giving a reason.

The government had said the law was aimed at spurring the hiring of youth. The effort “was not understood by everyone. I express my regret,” a humbled de Villepin said.