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Home Publications Blogs Beat the Press How Sick Is France's Labor Market?

How Sick Is France's Labor Market?

Wednesday, 15 May 2013 04:49

The NYT had a piece on changes to French labor market regulation that will make it easier for employers to cut wages. The piece implies that France has a seriously dysfunctional labor market:

"There is wide agreement that the country has to bring down its relatively high labor costs if it is to compete with lower-wage destinations overseas and even with Germany, which underwent its own painful labor-market restructuring over the last decade and currently has a jobless rate of just 5.4 percent.

"It is the kind of structural overhaul that European Union leaders are urging to increase employment and growth in France, which is being given two more years to get its budget deficit down to the European Union-mandated 3 percent of the gross domestic product. But even the government acknowledges that more must be done, including further changes to pensions.

"France is in the midst of an unemployment crisis, with nearly 11 percent of the work force unemployed in a period of near recession. Among people under 24, the problem is even worse, with more than 26 percent jobless."

France's economy is clearly depressed, but the more obvious culprit would seem to be the fallout from the collapse of housing bubbles across Europe and the austerity policies being imposed by the European Central Bank and the European Union. While France's unemployment picture does look bad, its employment to population ratio tells a different story. According to the OECD, the employment to population ratio (EPOP) in France, for people ages 16-64, was 63.9 percent in 2012, down only slightly from its 64.2 percent rate in 2007.

By comparison, the EPOP in the United States has fallen 4.8 percentage points over this period, from 71.9 percent in 2007 to 67.1 percentage points in 2012. The reason that the United States has not seen a comparable rise in its unemployment rate is that a large portion of those without jobs have given up looking for work. Most economists would probably not consider this evidence of a well-functioning labor market.

Comments (3)Add Comment
written by Last Mover, May 15, 2013 6:56
There's a reason why the French think Americans look stupid when they smile so much.
we must rescue the french again?
written by pete, May 15, 2013 9:16
Ah, it is not enough to want to control the U.S. economy, Dean now wants to control Europe too. I remember a quote from last year how some Parisian woman's dream for her son to get a good government job. Sigh. The telltale story was the tire manufacturer who dissed the French for working 3 hours a day. The labor leader told him that's the way it is in France. See ya!

Regarding U.S. "giving up looking for work," this is silly. Clearly some have gotten into SSI. Unfortunately SSI punishes partial work severely. Only real losers give up looking. If able, firms cut payroll by letting go the least productive workers. (This is illegal in the public schools.) Hence, productivity grew during the recession. These least productive workers will be the last rehired, if ever. I can always tell a recession is imminent when the clerk at 7-11 can't make change. Nowadays I see quite educated folks at very menial jobs. And I suspect many "unemployed" are working off the books. This is way true in the Asian communities with off the book work at restaurants. And now we have self-proprietor food trucks to get below the minimum wage.

Of course, about 11M of our workforce is already off the books, undocumented. Adding 11M to the numerator and denominator will bring down the unemployment rate. Of course the attempt now is to make these 11M unemployed. Currently the wage for skilled undocumented laborers is above $15 an hour in Texas. A similarly skilled union carpenter or painter probably costs above $45 in wages, SS, insurance, etc. Immigration reform will not increase the demand for labor, simply triple the cost. This will increase the true unemployment rate (including the 11M).
written by skeptonomist, May 15, 2013 9:42
I refer again to the absolute values of unit labor cost (I am reading Dean's post downward, not in chronological order):


France's labor cost is not really out of line, and it has followed a consistent trend. Yes, Germany's have come way down relative to the rest of Europe, but they were way high in the early 90's. As Dean says, high labor costs are not the problem in France, or really anywhere else at this point.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.