Just for fun, let's blast the NYT, quickly:
France's Misguided Protesters
For the second time in four months, French streets are filled with riot police, tear gas and rampaging youths.
Still that focus on the isolated and irrelevant acts of violence, which have very little to do with the protests. The NYT makes it sound as if violence is the only form of protest, which is absolutely misleading.
This time, privileged university students have been protesting what they see as an assault on the job security that they consider their birthright. But the labor reform to which they are so opposed is much needed and was proposed by Prime Minister Dominique de Villepin as a partial answer to those who rioted in the suburbs.
Again, major untruths: the university students are not "privileged". They are middle class, and not part of the privileged few that go to Grandes Ecoles
. They do not have a "birthright" to lifetime employment - nobody does in France, at least in the private sector, like in all other countries. It is possible to fire people with cause. The suburb youth are just as hostile to the law: they are likely to be their first victims, as it makes discrimination even easier.
Unemployment is at 22.2 percent among the young and close to 40 percent in the poor suburbs, compared with 9.6 percent nationwide.
False - it's at 22% among the active
young, not amongst the overall population of young people. The way this sentence is written, it's not just sloppy writing, it's factually wrong.
Mr. de Villepin['s] law is a reasonable attempt to remedy a serious problem, and the reaction of the students and unions is out of line.
Why is the reaction "out of line"? What does that even mean? They should not be able to express themselves?
And that's coming from the "liberal media". Sigh...
But anyway, on to the more interesting Munchau article:
Wolfgang Munchau: De Villepin’s labours
The students are winning the political battle against Dominique de Villepin, the French prime minister, over his labour contract for young people, known as CPE. At first sight, the travails of Mr de Villepin fit a depressing pattern of Europe’s chronic inability to reform. The prime minister is portrayed in the media as an idealistic political leader who tried to do the right thing, but failed. In the same vein, the young protesters on the streets of Paris look as though they stand in the way of France’s transition to the 21st century.
This narrative is as widespread as it is false.
- It's a narrative, an essential point to acknowledge;
- it's false, also a major admission
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.
Facts are on our side! (As usual, one could say)
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. 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.
It would be nice to see Munchau acknowledge the fact that the youth unemployment is skewed (I repeat myself, I know, but this is an essential point), by the fact that the active young population is very small in France, thus making the unemployment rate (the ratio of the number of unemployed to the active population) high despite the fact that the ratio of unemployed to the overall youth population is not markedly different than in other countries (right column below).
But his point about the existence of a conflict between insiders and outsiders, and one between generations is true.
He then goes on to discuss Olivier Blanchard, an eocnomist at MIT who recently wrote a paper on economic theories of unemployment (European Unemployment: The Evolution of Facts and Ideas, pdf), which concludes that economists basically don't know what causes unemployment (or not) in European countries, as the empirical experience is contradictory.
(As a side note, the Blanchard study notes that
The labor market is characterized by large flows—high rates of separations from firms, and high rates of hires by firms. In France for example, 1.5% of all jobs are destroyed each month and roughly as many are created— interestingly, this is about the same percentage as in the United States. As there are many reasons other than job destruction why a worker may separate from a firm, the flows of workers are typically much higher. In France, they are of the order of 4% per month (Pierre Cahuc and André Zylberberg 2004).
This should put to rest the notions that the current French labor market is not flexible... One can dream)
back to Munchau)
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.
While I would disagree with the description of the existing contract as "absurdly protective", he has a point in that the problem is the difference between that contract and the others, less protected ones, and that the CPE only adds to an already long list of precarious work contracts, which French companies use and abuse with entrain
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.
And that's the basic complaint of the protesters. Logical, sensible and reality-based.
Sadly, Wolfgang Munchau comes to the wrong conclusion:
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.
Despite quoting the Blanchard study, Munchau still comes back with the tired arguments that it's all the fault of the 35-hour week and the minimum wage.
The minimum wage does not seem to be an issue in Ireland or the UK, despite being at similarly extravagant levels (and having increased less in France than in the UK in the past 10 years), so that must not be it.
The 35-hour week was applied in a period which saw the biggest net creation of jobs in France ever; and ever since it's been weakened by Chirac's various governments since 2002, the job creation performance has been much weaker. There may be no link, but it's equally hard to blame the 35-hour week for the lack of job creation...
Munchau is at least coherent, in that he focuses on the right problem, i.e. the existence of this two-tier system, and his solution - weaken protections for everybody, makes sense and is, in a way, fair (in being harsh on all workers equally).
The problem is that it does not work. The solution to job creation is not to create more precarity, which will only be abused, in the current context, by corporations. It is to create of new mood of confidence and optimism in the economy that allows to bring the young into the system first.
Bring them back onboard, and then slowly nudge things toward more flexibility. There has to be a positive incentive. We've seen the results of negative incentives in the past 25 years: people get increasingly apathetic, resentful, hostile to politicians - and rightly so. They are only promised pain, with no perspective of any improvement. The way out must be up, not down.
So I'll push again for a new "emplois jeunes" programme - a massive jobs programme for the youth, focusing on the practical resolution of the very real social problems of the country in the cités and schools. Make it long enough to get young people time to put their life on track (5 years sounds reasonable), focus it on the youth from the banlieues and the immigration who need it most, and make them work on things that actually improve their neighborhoods, and the chances for their younger brothers and sisters to get forward in life.
Then, maybe, possibly it may make sense to nudge the long term work contracts into something a bit more flexible than the existing version.
This needs to be fleshed out and argumented further, but I think it holds promise - and it worked under Jospin.
In the meantime, let's simply enjoy Munchau's conclusion, again
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.