Monday, March 20, 2006

Union and Student Protests in France

Student protesters and French unions continue to put up a stiff resistance to the government's labor reform proposals. This BBC article discusses the recent call for a day of strikes and protests. Aplia Econblog wrote about French labor reform in January. The post, copied below, discusses the economics behind the controversial reform proposal.

Dominique de Villepin, France's prime minister, wants to loosen job protection rights for young workers. Existing French labor laws make it difficult and expensive for French firms to fire workers. The laws intend to prevent companies from dismissing employees on a whim. But job protection rights have some unintended consequences as well.

To analyze the effects of the laws, imagine yourself as a French business owner. Suppose a young, inexperienced worker applies for a position with your firm. There's a 50 percent chance she will work hard and a 50 percent chance she will slack off. You might be less willing to take a chance on this inexperienced worker if you face high dismissal costs in the event that she's a slacker. In short, French laws designed to protect workers actually create a disincentive for businesses to hire young, inexperienced workers in the first place. Some argue that this accounts for the sky-high youth unemployment rate in France, which currently stands at 23%--and even higher among immigrant populations.

De Villepin's reform would allow companies to hire workers ages 26 and under on a two-year trial basis. If a young worker excels during the two-year trial, she gets a full-time contract and all of the job protection rights that come with it. But if she doesn't, the employer could let her go at no cost. De Villepin argues that these looser firing restrictions would encourage firms to hire more young workers, driving down the youth unemployment rate.

De Villepin is not the first to propose such reforms. Each time officials proposed youth labor reforms in the past, massive labor union and student protests derailed the legislation--de Villepin can expect more of the same.

1. In addition to job protection measures, France offers comparatively generous unemployment insurance payments and high minimum wages. How do these policies affect the market for inexperienced youth labor?

2. Would you classify the unemployment created by government legislation such as the minimum wage or firing restrictions as structural, frictional, or cyclical?

3. French officials defend job protection measures, arguing that job security makes workers happier, and therefore more productive. How might job protection measures affect worker productivity?

4. If you were a student in France, would you join the protests or endorse de Villepin?

Topics: Labor market, Unemployment, Structural reforms


  • At 12:09 PM, March 22, 2006, Blogger Will said…

    It is interesting how willing people are to live in a certain kind of
    lottery system, especially if it is the status quo. What the
    protesters seem to be saying is that 20% unemployment is OK if
    there's the possibility to get a cushy job with benefits and
    extensive vacation time. We live in a different lottery system here,
    but one nonetheless. Here, we generally accept greater job
    insecurity and fewer or no benefits for the prospect of getting to be
    a Wal-Mart manager or maybe even Mark Cuban. We're both trying to
    play the odds in different ways.


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