Sunday, March 19, 2006

France and the CPE, Continued

Unless you've been under a rock the past few days, you may have noticed that the protests over the proposed First Employment Contract (CPE) have graduated into small-scale riots. I watched coverage of the Paris rioters throwing paving stones, bricks and flares at the police lines for at least an hour. I know most of the protesters were peaceful, but suffering a bunch of idiots and professional troublemakers rarely helps a cause.

Back to the CPE. Most of the protesters and interested parties quoted by the BBC continue to advance the opinion that the reforms would somehow create higher unemployment rates, rather than work to reduce joblessness. From this article:

Civil servant Nicole Beauregard, who marched with her teenaged daughter, said: "Young people are less well-armed than we are to defend themselves.

"Getting into the workforce is already hard enough for them, and now they are putting up another obstacle."

I don't understand how the CPE could be a barrier to employment. If anything, the CPE will reduce potential liability costs for buying unnecessary labor and encourage employers to risk hiring new workers. The real obstacles to employment are laws that restrict employers from responding to market forces in a quick and efficient manner.

From this BBC interview, with university student Judith Duportail:

It is wrong to make it easier to hire and to fire people here in France.

I know it is the case in other countries, but there you don't have to wait months and months, perhaps even years, to get another job like you do here. I agree we must be flexible, but not like this."

The restrictions on firing workers is one of the factors contributing to a dearth in new hires. I'm no economic genius, though, so let's consult with the Organization for Economic Co-operation and Development:

Why does unemployment remain so high and participation so low?

The unemployment rate is currently 10% and has not been below 8% for twenty years, even at the cyclical peak of the late 1990s. There is room for discussion about the precise quantitative effects of strict employment protection and the minimum wage. But these effects, combined with the uncertainty over the cost of dismissal to the employer, and the fact that the minimum cost of labour exceeds the potential productivity of a number of low skilled workers, appear to be responsible for a large part of the high level of structural unemployment, especially among certain groups, such as youth and the long-term unemployed. These policies are intended to place part of the responsibility for income protection and security of employment on employers. Over the years the response of employers to these increases in labour costs has been to reduce the demand for labour even though reductions over the last decade in social insurance contributions for low paid workers have increased employment prospects for the low skilled. High employers' social insurance contributions have the same effect on the demand for labour at wage levels where these reductions no longer have an impact. On the other hand, the interaction of taxes, social security contributions and social benefits also leads to poor labour market performance by tending to reduce the supply of labour.

I suggest reading the entire article at the OECD, along with the full Economic Survey of France that covers other aspects of the French economy and labor troubles.

In short, the CPE is just one of many sorely-needed reforms necessary for the French economy to prosper.


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