Bell Curve The Law Talking Guy Raised by Republicans U.S. West
Well, he's kind of had it in for me ever since I accidentally ran over his dog. Actually, replace "accidentally" with "repeatedly," and replace "dog" with "son."

Thursday, March 30, 2006

What's the big deal, Poirot?

The French have hit the streets, again. This time it is over government attempts to loosen strict labor laws that make it hard for employers to lay people off. The Constitutional Council in France has upheld the government's proposal, thus the nation will come to a halt.

The law basically removes job protections for workers under the age of 26. To American youth who have no idea what a "job protection" is, it is hard to see what the big beef is all about. Even I am having a hard time understanding this overpowering sense of entitlement that many French seem to feel when it comes to state protection and assistance. That said, over the years in my trips to Southwest France, I have seen this attitude changing somewhat. But the Southwest is France's answer to Orange county. I can't speak for the rest of the country.

The French suffer from a type of schizophrenia when it comes to the government. They have a fundamental mistrust of the government while at the same time, an over-dependence on the welfare state. From the French perspective, the government is full of elitist politicians with their hands in everyone's pocket, nobles in need of a little metaphorical decapitation. The welfare state however, is a fundamental part of the Republic in that it maintains the mechanisms for redistribution of wealth and control over the elites. The French all complain about the civil service (bloated and spoiled) and power of trade unions (which are making up a smaller percentage of the workforce). But at the same time, they tend to support strikers. What is worse, the youth are now all aspiring to become civil servants. As the Economist put it, "What a chilling lack of ambition."

Here is the scarier part: 68% of the French are against the changes. So it is no surprise that the youth have managed to bring the country to a halt. (and please, no comparisons to the student protests of 1968. That was about democracy. These protests are about nanny state benefits. Not the same thing.)

France has a long running, persistent problem with double digit unemployment, especially among the young. This is in part what sparked the riots last year. With EU rules that allow the free movement of labor among the members, the employment pressures are increasing.

From my perspective, the problem with the government plan is that it isn't coupled with a job creation program. They see their proposal as THE job creation program. I agree with the hard line that the government is taking, but I am not convinced this alone will solve the problems. The whole labor market has to be opened up. I bet they will have to negotiate a settlement that will result in some half-measure that changes very little, which is what always happens.

One example of a half measure was the 35 work week, which was supposed to create more jobs. That failed because it wasn't coupled with looser employment regulations thus making hard for employers to ramp up production to meet demand because they were limited in the overtime they could grant. It also penalized the average French worker by cutting salaries for newer employees who are paid by the hour. This came at the same time that consumer prices and demand were rising in France.

It is time for the political elite to bite the bullet and make the hard changes that a modern, globalized economy requires. And if the French public wants to cry foul on capitalism, I'd remind them that they are quite happy buying subs (now with cup holders!), yacking on cell phones, typing away on home computers, taking vacations to exotic destinations, and getting fat like the rest of us in the free world. This all thanks to capitalism and globalization.

If France wants to create more jobs and keep its best and brightest at home, it must become more competitive. It has to loosen its labor laws, end subsidies in key sectors, liberalize the business environment and cut the red tape that makes opening a small business difficult. And while they are at it, start letting retail outlets run sales when they want rather than limiting them to twice a year. It's such a drag, you know.


Anonymous said...

I sympathize with the French students quite a bit. The message from the government is this: to compete with other countries where everyone's employment hangs on the boss's whim, we have to do the same. Nobody likes the race to the bottom. 

// posted by LTG

Anonymous said...

The character Hercule Poirot is Belgian, by the way. Just a heads-up. 

// posted by Bell Curve

Anonymous said...

Bummer that I got it wrong. Touche, BC! 

// posted by USwest

Anonymous said...

What France has now is a system where those workers who get jobs get them for life unless the company goes totally under. This has two effects. French companies in riskier sectors will not want to hire workers in France and those workers who don't have jobs now will have trouble getting jobs in the future.

I just want to point out that the choice that LTG suggests is not the choice facing France. They are chosing between full employment with security and full employment without it. They are chosing between job security for 2/3 of the workers and recuring or chronic unemployment for the rest. This is the infamous "2/3 society" that is so controversial in Germany.

In the end the situation is not so different from what we have in the US. About 1/3 of our workforce is stuck in low paying McJobs. While systems like France have mass unemployment we have a "working poor."

The real difference is in what the bugetary pressures are. Their system is unsustainable in the long run because it costs so much to keep that 1/3 alive on state support. Our system is cheaper because those low paying jobs act in a similar (but not exactly the same) way to France's more wide spread welfare payouts.

Some have argued that this is the EU's fault. In the past French reaction to these budgetary pressures was to voluntarily devalue the Franc. However, now that they are in the Euro-zone, they don't have that option. Thus the blame on the EU. But even before the Euro, this strategy had the effect of imposing the costs of French inefficiency on the states that trade with them and who hold assets in Francs. So it is not the case that the old way of doing things was either costless or sustainable.

France has to make this change sooner or later. If they make it now people will suffer in the transition. If they wait until later, more people will suffer.

My objection to this move is that it targets young workers and leaves older workers (more likely to vote for Chirac's party?) alone. This kind of reform should be imposed on all workers evenly and fairly.  

// posted by Raised By Republicans

Anonymous said...

I'm not sure I agree with RBR's assessment of the similarity of the French and US systems. I agree that the bottom 1/3 have similar lives, except that the bottom 1/3 in France have health insurance, while ours do not. Also, homelessness afflicts some of our working poor; not in France.

Also, the 'jobs for life' is a bit exaggerated. A close relative runs a business in France, and there are ways of laying off workers for economic reasons, as well as firing them for cause. It just requires more effort. Given the absence of lawsuits in France, the cost differential is less than you think. It's just more fair. Speaking as a lawyer, I can say that in the USA, the fear of lawsuits by any fired employee who is not a white male (middle class salaried jobs) means that after a few years, middle class jobs for those people are effectively jobs where you can only be fired "for cause." For white males in good jobs, the system is still "at will" employment. I know this will create a firestorm when I say this, but I believe it is a true assessment.

However, I think that job security, particularly for new hires is a very big deal. I think we should be increasing protections, not decreasing them. The race to the bottom can only be stopped by collective action. Once stopped, its pernicious effects abate.

I am not sure I agree either that the French system is unsustainable from a budgetary point of view. The US government is running far greater deficits than the French, is it not?

This may reduce youth unemployment, but it will result in lots of people being fired at age 26 and postpone the unemployment to a more expensive time in people's lives. A bad idea for so many reasons. I agree that any slackening of work protections should be across the board, or it will introduce new problems.

By the way, the Economist's assessment of the "lack of ambition" is, I believe, totally based on a misunderstanding of French life. Civil service jobs are the route to power in France, quite different from here. A small number of grandes ecoles feed the high echelons of civil service, which leads directly to power and prestige. It is natural for ambitious Frenchmen to want that. It is a shame that in our system, the civil servants are so underpaid and underappreciated that they are filled by the ranks of the mediocre. One example: most of the court staff in Los Angeles have little or no college education (the clerks etc.). Imagine how much our government would be improved if we attracted the best and the brightest to government service! But I digress...


// posted by LTG

Anonymous said...

Actually, I agree with RBR that the reforms should be for everyone, not just the young. Also, I agree with LTG that it is hard in this country to fire anyone who isn't white and male. It is also hard to get older workers to retire. Thus, downsizing and reorganization.

I would disagree, however, that those youth in France are seeking civil service jobs because of prestige. They want those jobs for the security. In fact, most civil service jobs in France are not power positions. Mail carriers, bus drivers, hospital staff, etc. are low level civil service positions. Those in the upper echelons who come from ENA and Sciences Po have nothing to fear from the new reforms. They are part of the elite that is set for life.

Chirace is about as popular among the French as Bush is in the US at the moment. RBR makes a good point about using this to keep his voting bloc intact. He didn't win with a soild mandate, despite his trying to say so. And currently, the French political parties are in crisis. The communists are basically gone. The socialists are weak, but gaining steam. Le Pen's group, I hope, will loose some of its backing. But so long as unemployment is high and people feel frustrated, he is liable to pick up steam, especially in the South where farmers are getting frustrated with EU pressure. Chirac, remeber won as the lesser of two evils. But, the French political scene does have some interesting characters such as Sarkozy and de Villepan . Sarkozy is young, energetic, and McCain-like in some of his opinions. And the French have a whole new generation of young people who are eager to compete and who have innovative ideas. The key is keeping them in France!

The other problem the French have is a large immigrant population that is very young and feeling marginalized. So that makes the situation more urgent. I might add that while homlessness may not be evident in France, the conditions in public housing are far from great.(Of course, find any public housing in the world that is great, an I will eat my hat.) France has poverty, it just comes in a different form. I would argue that French poverty gets covered up by the welfare system and allows the state to forget about it. This is sort of what happened with the riots. the government knew there were problems, but so long as the social net was in place, they sort of ignored them. The medical system is costing the French tax payers big bucks. It is a great system, no doubt about it. But unless people start working and paying taxes into it, it will collapse much as the British public health system has. In fact, unless some of the tax breaks offered in this country are removed, we will see a collapse as well.

At the risk of digresing, there is another though that comes to mind. We in the U.S. may soon face a problem with youth unemployement. Baby boomers are not retiring at 62. Many of them plan to stay on working, earning high salaries mostly because they can and because they can't afford their lifestyles on retirement checks. Many, who retired 5 or six years ago are back in the workforce shaking hands at Walmart because inflation has eroded their retriement benefits. Also, many are loosing pensions benefits. As long as those still working occupy those high paying slots there will be fewer slots for young people. Furthermore, young people will move into higher paying jobs later than did their parents and their earning potential (further eroded by economic conditions) and thus retirement savings potential may be harmed. All of this while trying to support the largest population of retirees since the New Deal. France may not be the only system that is unsustainable.

I am not sure what you do about working poor and people living on the dole. But one thing is for sure, we are in a whole new era for social welfare. New models are going to have to be designed across the Western World. I just wish I new what they could be. 

// posted by USWest

Anonymous said...

Re the bugetary pressures. France has a chronic problem with debt and deficits. Far worse than our own here in the USA - even with Bush spending like a drunk sailor on everything that comes across his desk plus his wars.

Comparative analysis suggests that countries with more resctrictive rules about layoffs have higher unemployment and that those unemployment levels are harder to reduce when economies go through boom periods.

If having restrictive labor market regs were as costless as LTG seems to suggest, why are all industrialized countries moving away from them? Or at least trying to.

// posted by Raised By Republicans

Anonymous said...

One clarification. I don't want to give the impression that I think that only big welfare states and labor regs cause debt problems. I also don't want to give the impression that I think that all welfare states cause debt problems.

For example, while France's public debt is 66% of their GDP, the US public debt is 64% of GDP. So you can spend too much on nearly as easily as you can spend too much on traditional benefits to various demographics and professions (and France spends too much on guns too).

At the same time, Denmark - certainly no slouch in the generous welfare state department - has public debt of only 40% of their GDP.

My argument regarding French policy reform is not so much that they should abandon the idea of a welfare state. Rather they should abandon the French way of setting on up. The French welfare state is a very inefficient example of one and there are far more efficient models they could adopt without going the way the US has.

One last comment about sustainability. While the US debt load is caused largely by our extraordinarily low tax rate, French tax payers are already being taxed at fairly high levels. I would suggest that our debt trends could be quickly turned around with a marginal increase in taxes. The same cannot be said of the situation in France.

The reason this is all related to labor market reform is that the French state is taking up the slack in the market by subsidizing companies which French labor market regs (and other French comand economy policies) make inefficient.  

// posted by Raised By Republicans

Anonymous said...

Good point, RBR. I hadn't thought about the tax differental. I would only point out that Denmark, like the Scandinavian countries, has a much smaller population that is arguably more homogenous than countries like France and Germany. So the sheer size of the pool that need social services is much larger. Of course, everything is relative and the tax base should be able to provide adequate services.

The innefficieny is a good point. Take medical services, the French pop pills like crazy. And that is all paid for by the state. As A student, I automatically had insurance at such a minimal cost, I didn't even notice I paid it. That is great for me but impractical for a large population.

Then there is the inefficiency built into the market itself. In fact, one of the battles in the EU has been over the French insistance on saving inefficient companies. I remember well the battle over Air France for example. The trend now is for companies like Air France to partner with other companies such as KLM. Alcatel is also being sold now. So there is an attempt on the part of French businesses to adjust to new conditions. Only they are being held back by the restrictive labor situation.

I would be curious to know exactly how large a percentage of the French labor market would be affected by the changes suggested. I had lunch yesterday with a 25 year old Frenchman from my village in France. And I asked him what he thought of the situation. He didn't have an opinion because he hadn't bothered to pay any attention. Then I realized that he is training as a winemaker. Because of his profession, these types of reforms may not touch him. It would mostly effect those young people who work in office type posts or who want to join civil service. So this may be a small sliver of the labor pool. RBR, can you shed light on that? 

// posted by USwest

Anonymous said...

Does size really matter? Whenever the efficient Scandinavian welfare states are brought as examples the retort is always that their small size is an advantage. But that is why I reported the debt loads in terms of percentage of GDP rather than in absolute amounts. If anything small size makes countries more volunerable to the shifting winds of the world economy. That probably explains why small countries tend to be more efficient - inefficiency in a small economy causes crises faster than in a big one. But I can't think of a causal link between size and efficiency that would support the "small countries have it easy" argument. Also, in terms of percentage of population, Denmark's population is not THAT different from France in terms of ethnic homogeneity.

RE how much of the labor force will this effect in France...The French welfare state is based on a complex network of narrowly targetted benefits and protectionist regulations. US West's friend training to be a Wine Maker is a great example. He's young but in his particular profession it won't matter what this general labor law will be. Reforming that system requires lots and lots of small reforms each one as controversial as the last. In this case, the government is reforming the labor regs for young workers but apparently certain types professions are exempt even from that.

In the end, people are protesting this reform because they expect similar reforms will go after their little niche benefits next. And they're right to expect that.  

// posted by Raised By Republicans