WITH scandals plaguingAmerican politics, it iseasy to dismiss theimportance of politics in everyday life. But in France, politics has begun to take a much edgier tone with millions of people up in arms over the First Employment Contract law. The implications of the law have sparked students flocking to the streets, violent protests and internal political jockeying par excellence. But when the rhetoric is cast aside, it is clear that the French labor law reforms are absolutely necessary to reduce unemployment, ease social tensions and make the French economy more dynamic. Those who oppose the law do so purely out of self-interest and at the expense of the rest of France.
The French economy is among the most regulated in the world. Workers are guaranteed weeks of vacation time, fantastic pension plans -- particularly in the public sector -- and nearly unassailable job security. While these may sound like admirable perquisites that ought to be replete in all rich countries, too much government regulation takes its toll. In 2006, France's gross domestic product has grown by just 1.8 percent with public debt actually totaling 68.8 percent of GDP. The French are decidedly less well off than Americans with a per capita GDP of $28,700 as of 2004 and unemployment at 9.7 percent in November 2005 (note this does not include Frenchmen who have given up any prospect of finding work). Most alarming of all is that youth unemployment has topped 20 percent and has even reached 40 percent in some suburban (particularly Muslim) communities. As the fires and riots of just a few months ago painfully demonstrated, the economic sluggishness of the status quo cannot be maintained. The French government must act swiftly lest France not only be eclipsed by more dynamic economies with much faster growth rates but also risk endangering its very social fabric.
The problem of youth unemployment is really a symptom of the underlying problem: regulation. As it stands right now, it is nearly impossible to fire employees in France. Therefore, when firms make hiring decisions they must think extremely long term since they cannot shed excess workers in times of recession, unlike American firms. This has led to the unemployment and underemployment of many young Frenchmen just entering the labor force.
Firms are reluctant to hire them for full-time jobs since they essentially cannot be fired. Prime Minister Dominique de Villepin's proposed solution to this problem, which was only recently signed into law, is to allow firms to fire employees under age 26 in their first two years of work without explanation. This loosening of the French regulatory regime is exactly the push the French economy needs. It will allow firms to be more flexible and hire more workers while simultaneously making the French labor pool more competitive.
But then students took to the streets. Unions and student groups have been vigorously protesting the new law; they argue that the law must not be invoked yet in order for there to be negotiations. The students claim the new law decreases job security and that firms will simply fire workers every two years and hire new young people. This scenario is an utter fabrication propagated by self-serving students. The current system encourages what economists call "insiders" versus "outsiders." Those who are highly qualified and well-connected, such as university students, are likely to get jobs and then keep them forever under the current labor laws. However, those who are less qualified or less connected may not be able to find steady employment for years, if ever.
It is the students who have been reacting angrily against the reforms, not the masses of unemployed and, more importantly, not the Muslims who are already highly marginalized within French society. Furthermore, firing and re-hiring every two years is the last thing any firm would want to do. There are two main reasons firms have employees and do not use spot-contracts for everything. First, constantly hiring new workers is cost-prohibitive in terms of both finding and training new workers. Second, employees get more productive after they have been working at the same job for a while. Despite all their studies, it seems the students missed these well-known tenants of economics.
The labor law changes are essential if France wishes to remain competitive in the global economy and ease domestic, socioeconomic tensions. Unfortunately, politics as usual has gotten in the way. De Villepin has become worried that the opposition to the law could hurt his presidential aspirations and has entered into talks with the students and unions. Interior Minister Nicolas Sarkozy has jumped on the controversy as a means to bolster his presidential ascendancy. Instead of getting the real economic reforms France needs, it looks increasingly likely that the reforms will be watered-down and the French economy will continue to trudge along at a sluggish pace.
Josh Levy's column appears Fridays in The Cavalier Daily. He can be reached at jlevy@cavalierdaily.com.
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