[lit-ideas] Re: Are you out there, Didier?

  • From: Teemu Pyyluoma <teme17@xxxxxxxxx>
  • To: lit-ideas@xxxxxxxxxxxxx
  • Date: Fri, 31 Mar 2006 03:28:08 -0800 (PST)

Didier is propably busy with something else, so I'll
explain Lawrence that it isn't that simple. May I as
usual offer Financial Times, one of the very few
English language papers that does a good job at
covering EU and Continental Europe, that is goes
beyond the trendy pseudo-explanations. Wolfgang
Munchau writes (pay wall free at
http://www.business-standard.com/ft/storypage.php?&autono=220190,
comments in bracket mine):

"As far as I know there exists no reputable academic
foundation for Mr de Villepin?s specific proposal ? a
work contract that removes employment protection for
the young, while leaving it fully in place for the
old. There is some consensus in the labour market
literature that excessive employment protection can
lead to high unemployment among certain groups,
including the young. But this consensus does not imply
the selective removal of employment protection for a
single age group. I would suspect that most labour
market economists would be on the side of the students
in this conflict.

"French youth unemployment is among the highest in the
western world. It has oscillated between 20 and 30 per
cent since the mid-1980s and is now at the lower end
of this band, but with no signs of a futher decline. 
[Others have pointed out that the number of young
people who are counted among job seekers, 20 to 30 per
cent of which are unemployed, is a tiny fraction of
the age group because most are students and as such
the figure is not that informative, overall about 8%
of young people are unemployed in France...]

"Tito Boeri of Bocconi University in Milan and Pietro
Garibaldi at the University of Turin argue* that Mr de
Villepin?s CPE accentuates the intergenerational
conflict between labour market insiders and outsiders.
They conclude that for as long as this conflict
persists, there will be no genuine labour market
reform.

"Olivier Blanchard, professor of economics at the
Massachusetts Institute of Technology and probably the
best-known French macroeconomist, has recently warned
in a much-noted paper [for a good discussion and
summary of what is the latest, refreshingly humble and
propably the best paper on European unemployment see
http://economistsview.typepad.com/economistsview/2005/11/blanchard_europ.html]
that we know a good deal less about the causes of
European unemployment than we think we do. While his
comments were not specifically addressed at youth
unemployment, they should serve as a warning to
politicians such as Mr de Villepin, who believe that
they have grasped the full extent of the problem.

"Blanchard?s own solution to reduce youth unemployment
in France, as he argued on another occasion, is for a
universal contract with phased protection according to
time spent in a company ? the longer you work for a
company, the higher your level of protection. This
proposal would be less discriminatory than the CPE,
and would address the obdurate two-tier problem, under
which one set of labour market rules applies to one
group of workers, while another set applies to another
group.

"The two-tier labour market in France is the result of
a panoply of employment contracts ? a standard
contract that offers an absurdly high level of
employment protection and various other types that
offer little to none. Mr de Villepin?s CPE is the
latest addition to the range. It has no time limit,
offers no protection at all during the first two
years, and full protection thereafter.

"The trouble occurs at the crossover point ? for
example, when people try to move from a fixed-term
contract to a permanent one. Employers have no
incentives to offer their employees a permanent
contractual employment guarantee. This is why many
present fixed-term contracts end in unemployment,
rather than permanent work.

"The same problem also applies to Mr de Villepin?s
CPE. Whereas previously employers failed to turn
fixed-term contracts into permanent ones, they will in
future simply dismiss young employees at the end of
the two-year trial period. Instead of inventing yet
another type of employment contract, Mr de Villepin
should have reformed the employment protection for
existing labour agreements. That would have had some
effect on employers? incentives to take on young
people after a trial period. Under Mr de Villepin?s
CPE, young people start their careers in a US-style
hire-and-fire labour environment for two years, after
which they will either enjoy protection for life, or
become unemployed. This is absurd.

"Any serious reformer of the French labour market
would also at least have to address other factors that
might contribute to high structural unemployment, such
as the 35-hour week and the minimum wage, also known
in France as SMIC, which is presently set at ?8.03 per
hour. According to the Organisation for Economic
Co-operation and Development, 13 per cent of French
workers were paid the minimum wage. It represents
about 60 per cent of the median production worker?s
wage. These data suggest that the SMIC may have been
set too high.

"As a serious instrument of economic reform, Mr de
Villepin?s CPE is too one-sided. Its net economic
effect may well be negative, if you take into account
the loss of economic output from tomorrow?s strike,
and other disruptions caused by the recent mass
demonstrations. This is bad economics and bad
politics. Mr de Villepin is not a tragic hero who is
sacrificing his political career for the greater good.
He is simply a politician who bungled one of the
biggest reforms in modern French politics."

That is a very long way to say that supposedly leftist
NY Times for example hasn't got a clue.


Cheers,
Teemu
Helsinki, Finland

--- Lawrence Helm <lawrencehelm@xxxxxxxxxxxx> wrote:

> I wonder if Didier Agid is lurking.  If so, perhaps
> he would come out of
> lurkhood long enough to comment upon politics by
> street riot. Villepin's
> proposal that companies have the right to fire
> employees under 26 with less
> than two years experience seems a very small step,
> but in the right
> direction.  And then the students take to the street
> to protest this
> proposed loss of this entitlement.  That's rather a
> bad thing for them to be
> doing, don't you think, Didier?  
> 
>  
> 
> And does it seem that Villepin is being so
> reasonable because Sarkozy is in
> the wings ready to be even more reasonable?
> 
>  
> 
>  
> 
>  
> 
> Lawrence
> 
> 


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