He told high school and university student leaders hastily invited to talks in his cabinet office that he was suspending the law while the head of the national employment agency, Michel Bon, sought an alternative within one week.
The prime minister initially refused to scrap the law allowing employers to pay people under 25 less than the minimum wage on training contracts, prompting the high school students' association, or FIDL, to walk out.
But after further talks, government spokesman Nicolas Sarkozy said Bon's mission was "to define a new system."
Balladur's U-turn, a week after Labor Minister Michel Giraud compared the law to the World War I Battle of Verdun and vowed "They shall not pass," seemed bound to open the Gaullist premier to accusations of weakness.
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