Home > Uncategorized > The evidence does not support Macron’s claim that deregulating labor market will boost economy

The evidence does not support Macron’s claim that deregulating labor market will boost economy

from Dean Baker

In her Washington Post column, Catherine Rampell repeats some ill-founded conventional wisdom in telling readers that French president Emmanuel Macron’s plans to weaken labor unions and reduce restrictions on laying off workers are the path to revitalizing France’s economy. In fact, this claim is not supported by the evidence. There is little evidence that strong unions or labor market protections are associated with high unemployment.

The most obvious reason that France has had high unemployment is the turn to austerity in 2010 following the economic crisis. As a result of the cutbacks in government spending, there was no source of demand to replace the demand generated by asset bubbles prior to the crisis. For some reason, this fact is rarely mentioned in reporting on France’s economy.

It is also worth noting that France’s “stagnant labor market” has a much higher employment rate for prime age (ages 25 to 54) workers than the U.S. labor market (79.7 percent in France compared to 78.2 percent in the United States). This fact would seem to undermine the case that regulations are seriously hampering France’s labor market.

  1. patrick newman
    June 9, 2017 at 4:13 pm

    He will be trying the UK model which requires the state to supplement the low wages of millions of workers with tax credits and benefits and where it is not unknown for ‘customers’ of foodbanks to include people in full time employment.

    What this will mean is the creation of a sub-economy sustainable only by low wages and much degraded terms and conditions and where employement is replaced by work and work replaced by the so-called gig engagement. It is a race to the bottom. There may be higher employment in the UK but the UK is well below France and Germany in productivity. Macron’s English is good – he should spend some time in London and talk to people engaged by Deliveroo, DPD (where sick workers have to pay for their sick relief) and Uber of course.

    • robert locke
      June 10, 2017 at 9:19 am

      Why doesn’t he follow the German model? The Brits have nothing instructive to tell the French, as you so rightly point out. The Germans do.

  2. Craig
    June 9, 2017 at 8:47 pm

    Maybe if politicians and policy makers would contemplate the concept of directness regarding monetary and pricing policy and then looked for ways to accomplish that in the micro-economy they’d see the way out of the economy’s seeming unsolvable conundrums.

  3. rjw
    June 9, 2017 at 11:34 pm

    I have not checked the precise data, but I am fairly sure the employment rates in other ages groups are rather worse in France than in most advanced economies, and the overall employment rate is rather low. That leads some people to beleive, I guess, that it is a dualistic labour market. Hence the macron proposal. Moreover, unemployment was at 8 per cent before the financial crisis, and so it is hard to lay it at that door surely?

  4. June 10, 2017 at 3:10 pm

    Deregulating the labour market by former PM Renzi has not helped the situation in Italy.Macron should have a close look at the Italian situation before rushing in legislation.

  5. June 11, 2017 at 5:53 am

    Unfortunately France is in the middle of a free trade zone. Labor unions can work work wonders toward matching demand up with supply so that supply doesn’t have to drop. They must be backed up with good reasons preventing capital flight, though.

    Good point on the US comparison.

  6. June 11, 2017 at 7:41 am

    James Baldwin sums well what every historian knows, but few others do. “For history, as nearly no one seems to know, is not merely something to be read. And it does not refer merely, or even principally, to the past. On the contrary, the great force of history comes from the fact that we carry it within us, are unconsciously controlled by it in many ways, and history is literally present in all that we do. It could scarcely be otherwise, since it is to history that we owe our frames of reference, our identities, and our aspirations.” But if the history we are taught in schools and on the streets, is deliberately distorted for political, economic, religious, etc. purposes then also distorted are our frames of reference, our identities, and our aspirations. Case in point, employment. We are told that it is unnatural for all members of a society to have a job or to receive wages sufficient to support a family. We are also told that a job is not necessary for a comfortable and worthwhile life style. And we are told that people only work when forced to by physical needs, preferring instead to watch their favorite sport on TV or drink at the local bar. All these historical facts “we are told” are distortions of history. Or, outright historical lies. One of the consequences is government and business policies about employment and unemployment either fail or create results contrary to those expected. We need to get the history right. Then the policies would change and have a better chance of solving employment problems.

    • robert locke
      June 16, 2017 at 1:38 pm

      Your comment Ken, June 11, about James Baldwin:
      “James Baldwin sums well what every historian knows, but few others do. “For history, as nearly no one seems to know, is not merely something to be read. And it does not refer merely, or even principally, to the past. On the contrary, the great force of history comes from the fact that we carry it within us, are unconsciously controlled by it in many ways, and history is literally present in all that we do. It could scarcely be otherwise, since it is to history that we owe our frames of reference, our identities, and our aspirations.”

      As an historian, I readily understand, as one who has done research in various societies on a comparative basis, I understand perhaps even more than those historians whose work is rooted in one culture.

      When it comes to economists, to those who are not concerned with culture based arguments, I also understand that they are ill-equipped, because of their ignorance of history, to understand an historical perspective in economics.

      But I also think that an historian’s approach to economics can, since the end of the reign of the renaissance man and the inevitable triumph of knowledge specialists, tell economists something about their subject as science.

      Historians who want to know about (say) the usefulness of mathematics in economics, do not try to become mathematicians to make a determination. Since they study people, historians ask mathematicans, who have the requisite knowledge, about the usefulness of mathematics in the study of economics. Since so many economists are not mathematicians, they would do well to ask them how useful math is to economics and not make the mistake of thinking as economists they can know mathematics sufficiently to make the determination about its usefulness themselves (this point was driven home to me by a mathematician’s comment, he taught mathematics to engineers at the University of Alabama, that “engineers do not understand mathematics.”) Do economists? I doubt it.

      So when I set about trying to evaluate the usefulness of mathematics in management studies after WWII, I read the management journals, zeroing particularly on the Operational Research Quarterly, over the first twenty-five years of its existence, to note that doubt about the usefulness of mathematics in decision modeling grew rapidly the deeper I got into the period. The periodical was telling me that scientific modeling in operations research was being questioned by highly qualified mathematicians. Of course, mathematics has changed in the most recent quarter century as has our ability, through enhanced data calculation technology, that could erase these doubts, but I would like for people more knowledgeable about mathematics than economists, to tell me that.

      • June 19, 2017 at 5:44 am

        I studied with C. West Churchman during the 1970s. Churchman is one of the inventors of Operations Research. In his book “The Systems Approach,” Churchman says this about systems and their usefulness.

        “The correct approach to systems is to live in them, to react in terms of one’s experience, and not try to change them by means of some grandiose scheme or mathematical model. There are all kinds of anti-planners, but the most numerous are those who believe that experience and cleverness are the hallmarks of good management.”

        Economists today do just the opposite. They do everything possible to NOT live in the economic system, while fully engaged in changing these systems with grandiose mathematical models about which they have little genuine knowledge.

        I also worry that social scientists and economists do not ask mathematics about their use of mathematics. Philip J. Davis Reuben Hersh, two of my mathematics professors wrote a book titled “Descartes’ Dream” bank in 1986. They send a message to social scientists and economists about their use of mathematics.

        “The introduction of mathematical methods in biology, economics, psychology, and other branches of the so-called behavioral sciences has always been accompanied by controversy. The opponents to mathematization may have had good grounds for their resistance, but their arguments could be discounted by raising the suspicion that they didn’t understand the mathematical methods they were challenging.

        For this reason, it is important to state publicly that among professional mathematicians the skepticism about behavioral-science mathematics and even about mathematical biology is much stronger than it is among non-mathematical behavioral scientists and biologists.”

  7. robert locke
    June 11, 2017 at 10:16 am

    Ken, what historians know that economists ignore. An example, some years ago, people use to analyze the anatomy of revolution, focusing for the most part on the French Revolution of 1989 and then on the Russian revolution of 1917-. Historians themselves looked for specificities, social scientists, more boldly at reified anatomies. What historians noted about 1789 is that it started as a fiscal crisis. The French state spent more than it earned, so it needed to cut spending, increase taxes, or borrow more, all very bad alternatives. Louis XVI’s government decided to increase income from taxes, which made a lot of sense, because the privileged orders in the state, paid no taxes. When the government tried to tax the privileged, they revolted, thereby forcing the government to call for the meeting of the estates general, which hadn’t met since 1614, which turned out very badly for the king, the monarchy, and the privileged orders — what we now call unintended consequences. What can we learned from this history? Do not let the rich escape taxation, or a revolutionary situation can develop, with unintended consequences. Problem for economists is that the fiscal-taxation-social-interaction that historical study uncovers is not in their province.

    • June 12, 2017 at 6:37 am

      Wonderful example, Robert. History is complex. Take our current radicalized and tribalized culture in the USA and UK, and some parts of Europe. Richard Hofstadter’s book “The Paranoid Style in American Politics” makes these points about Barry Goldwater’s defeat in the 1968 Presidential election. Goldwater, he observed, had broken the back of “practical conservatism” and helped to elect a large liberal majority in Congress as well as a liberal president. And yet, he added, the right-wingers’ “zeal and gift” for organization had left them in a position “to make themselves effective far out of proportion to their numbers.” The practical conservative consensus began in the 19030’s while the US attempted to survive the Great Depression. While not perfect, it kept the US functioning, prosperous, and democratic for almost 40 years. And gave it the strength to help win WWII. Goldwater wasn’t the only factor in its death. Others following the same line as Goldwater helped in that work. But I agree with Hofstadter that Goldwater’s massive loss in 1968 gave the movement the anger, hatred, and raw energy to arrive now today when it’s a hair width away from destroying any sort of consensus on an “American” way of life. Sometimes total defeat is also total victory. When we no longer seek or can arrive at compromise and consensus as Americans, it comes to us in other ways. Such as real vs. fake Americans, Christians vs. non-Christians, and wealth vs democracy.

      • robert locke
        June 12, 2017 at 8:37 am

        I think you mean 1964 and I remember it well, because it is the only time in my life that I knocked on doors to register voters and get out the vote to defeat the right wingers, who were scaring the hell out of me. But I think the Left was just as much transformed as the right when it abandoned unions and social democracy in the poverty sense, which, had been the building blocks of the practical conservative consensus for a pro-gay, women’s rights, civil rights, libertarian life-style, that were not the aspirations of working, lower middle-class American society. I personally felt unable to identify with the new Left because my concerns were about what we use to call the working classes.

      • June 12, 2017 at 9:27 am

        Right, 1964. Typing too fast. Hofstadter writes about that result as well. The left became arrogant and greedy, in more than one sense. But it is the smashing of the conservative consensus that is the real story. That set of compromises ended the socialist/Marxist push to transform the US and the strong push back that the bankers and industrialists had planned. In other words, the compromises stopped a potential civil war. Or, more accurately postponed it. Spent the weekend in the streets watching alt-right demonstrators. All were armed, many with automatic weapons, and all were belligerent.

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