Inflexible laws hurt employees more than help
Published: Saturday, March 25th, 2006
French students, joined in some instances by union members, have been rioting in the streets for more than a week. Is this simply a rite of spring in la republique, where street demonstrations against the establishment that often turn violent are something of a national tradition? The answer in part is yes. But these demonstrations also are a bit different. They are aimed at preserving the status quo of employment law and overweening job protections — a status quo that has led to high unemployment, which was a contributing factor in riots in predominantly Muslim neighborhoods last fall and that affects young French people of all backgrounds. What brought about this profoundly illogical protest? For many years, in addition to high taxes, France has had very restrictive labor laws, designed to prevent people being laid off or fired. A French employer must notify a worker of an impending layoff in writing, a minimum of six weeks in advance and in some sectors nine months. A hearing must precede a layoff, and a laid-off worker gets hefty severance pay. This inflexibility and imposed complexity — the French employment code runs 2,500 pages — creates costs and serious economic consequences, including inhibiting investment and growth. Because it is so difficult and expensive to lay off a worker, French employers are reluctant to hire new people. The unemployment rate in France has hovered since the early 1990s around 10 percent, or more than twice the current U.S. rate of 4.8 percent. France’s growth in gross domestic product during the 1990s ran about 1.9 percent per year, compared with 4.3 percent in the United States. The picture for young people is even worse. Unemployment in France for people under 25 is about 22 percent, and in many Muslim neighborhoods it’s as high as 40 percent. Lack of meaningful employment — along with a sense that many French people don’t want them integrated into the larger society — was one cause of the riots that scarred France last fall. Some in French government are starting to get the picture. Prime Minister Dominique de Villepin introduced a law that would make employment “at will” for two years for those under 26, meaning an employer could lay off or fire a worker without giving a reason or going through a hearing. The idea is to reduce the disincentives for hiring new workers by allowing more flexibility when an employee doesn’t work out or business conditions change. Last August a similar bill allowed small companies this kind of flexibility. According to the Paris research institute IFOP, in the law’s first five months these small companies created 335,000 new jobs, a third of them the direct result of the legislation. In Spain the problem of inflexible employment laws was addressed by permitting temporary employment contracts for workers ages 16-25. Unemployment fell from 16 percent in 1999 to 8.7 percent in 2005. Youth unemployment was 17 percent in 2005 — still high perhaps, but better than 25.3 percent in 1999. So why should a law permitting greater flexibility in hiring and firing, which would almost certainly create new jobs and reduce unemployment, spark demonstrations and riots? To many French people this smacks of cold-blooded “Anglo-Saxon economics.” And many French students apparently prefer an empty promise of security that leads to stagnation to even a few years of uncertainty. Thus the dangers of government promises of total security in our lives, be it for jobs, health or income. Even when the truth finally dawns that government cannot repeal economic laws like supply and demand, a significant portion of the population still feels entitled and resists efforts at reform, even reform that will almost certainly improve the lot of young workers. To be sure, M. de Villepin slipped this bill into another piece of legislation as an amendment, so it was passed without debate. Depriving the country of a chance to discuss this approach has turned out to be a significant political blunder. Even so, however, it appears French universities have not done well at teaching logic to the young people in their charge.
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