Wolfgang Munchau is a mensch

While everyone in France is waiting for tomorrow’s decision (and not “démission” i.e. “resignation”, as Villepin said today in a dreadful slipe of the tongue) of the Constitutional Court on the CPE, I urge everyone to go read Wolfang Munchau’s refreshingly contrarian take on the current crisis.

The column is now safely protected by the FT’s subscriber’s firewall but, thanks to the wonders of globalization, freely available on the website of the Business Standard, an Indian financial newspaper:

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. 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.

Read the whole thing, as they say. It’s a lot better than the lazy drivel the international press has been offering on the subject of late.

For the sake of fairness and balance, I should add that not everyone is buying Munchau’s analysis. For a skeptical view, see our own Edward Hugh.

Jerôme of European Tribune, though much more convinced, takes issue with Munchau’s criticism of the 35 hours workweek and the level of the minimum wage in France. I agree with the first point (the shorter workweek is not the economic heresy that many people think it is) but not with the second: there is some solid empirical evidence that the cost for firms of entry-level workers is indeed too high in France (see for instance this paper – pdf). Jerôme points out that the French and the British minimum wage are now roughly at the same level. True enough, but one shouldn’t forget the fact that non-wage labor costs (mandatory contributions for pension plans, unemployment insurance, health insurance, etc.) are still a lot higher in France.

18 thoughts on “Wolfgang Munchau is a mensch

  1. Olivier Blanchard may well be right about us understanding less about the functioning of European labour markets than we think we do. But that is probably true of many or even most controversial economic issues and that prevailing state of ignorance should not be allowed to cover up that there is something undeniably sick about France’s labour market:

    “Just 53% of over-50s in France are in employment. This is a low rate compared with other OECD countries whose average is 59%. The gap is particularly wide among less-skilled workers: in 2002, only 51% of unskilled men aged 50 to 64 in France had jobs, compared with 88% in Iceland, 80% in Switzerland and 78% in Japan.”
    http://www.oecdobserver.org/news/fullstory.php/aid/1672/France:_Jobs_and_older_workers.html

    For a variety of reasons official unemployment rates are usually suspect because some governments can and do window-dress the figures by re-reallocating some of those in long-term unemployment to various national schemes for incapacity or invalidity benefits. For that reason, comparisons between employment rates are often better indicators of the relative buoyancy of national labour markets even though the media, politicians and popular interest persist in focusing on the unemployment figures.

    Links to the most recent official EU data I have managed to find on employment rates are here:

    http://epp.eurostat.cec.eu.int/cache/ITY_PUBLIC/3-10092004-AP/EN/3-10092004-AP-EN.PDF

    http://epp.eurostat.cec.eu.int/pls/portal/docs/PAGE/PGP_PRD_CAT_PREREL/PGE_CAT_PREREL_YEAR_2005/PGE_CAT_PREREL_YEAR_2005_MONTH_04/3-12042005-EN-AP.PDF

    The first link to figures from a labour market survey in 2003 shows the total employment rate for men in France at 69.4% and 78.1% in the UK. That is a big difference and reflects a wasteful under-use of France’s greatest national asset – its people.

    Emmanuel – Many thanks for finding a link to Munchau’s illuminating article in Monday’s Financial Times.

  2. “Olivier Blanchard, professor of economics at the Massachusetts Institute of Technology and probably the best-known French macroeconomist, has recently warned in a much-noted paper** that we know a good deal less about the causes of European unemployment than we think we do. While his comments were not specifically addressed at youth unemployment, they should serve as a warning to politicians such as Mr de Villepin, who believe that they have grasped the full extent of the problem.”

    Isn’t this the point. Munchau is arguing (correctly) that there is more to this problem than meets the eye. I think we can all agree. But the question is, just how many of the opponents to de Villepin’s law are out there demonstrating because they favour a more thoroughgoing ‘grasping the nettle’ reform? Very few, I conjecture.

    If this law is defeated, will the chances of a more extensive reform rise? Well, ironically, in the loger term possibly they will, since the accumulated problems will just grow until someone simply has to do something pretty drastic.

    In the short term a defeat would probably be bad news for the young unemployed and disgruntled in the Banlieu, since they will remain unemployed and disgruntled. (Incidentally, I’m not sure Munchau’s premise is entirely correct, this may not have been conceived as a measure for which “there exists no reputable academic foundation for Mr de Villepin’s specific proposal” simply because he may be looking at the wrong set of academics for the issue in hand – labour economists. If he looked at sociologists of conflict, or multiculturalists, and theorists of positive discrimination he might get a different reading. Maybe the measure isn’t desigend to resolve France’s deap-seated labour market issues, but simply a partial attempt to address a situation of deep inequality.

    In the broader sense though, Munchau is undoubtedly right, France needs a much more comprehensive set of labour market flexibilisation measures, and much more than this, something to address the tax-wedge problem.

    The latest OECD fact book highlights the reality that the so-called tax wedge — the share of total labour costs taken by the state in income tax and social security contributions — is 55.4 pct in Belgium, 51.8 pct in Germany and 50.1 pct in France.

    In the US the equivalent number is 29.1 pct, in the UK it is 33.5 pct and in Japan 27.7 pct. So obviously the measures that will as Munchau says ‘grasp the nettle’ will need to address this tax wedge issue, but then, as Perebeau indicated, this will involve a much more general look at how France is going to continue to finance its welfare system.

    This is going to be a huge plate to swallow, which is why, at the end of the day, I tend to disagree with Munchau. I think it is much better to make a small start than try to administer the medicine in one enormous dose.

    Backing off by Villepin now would not be a smart move IMHO.

  3. In the short term a defeat would probably be bad news for the young unemployed and disgruntled in the Banlieu, since they will remain unemployed and disgruntled.

    Do you really think there’s a realistic chance to get away with a policy that flatly states that you are hurting the middle class for the sake of underclass rioters?
    I can’t see that work. He’s pissing off the people he needs most.

  4. Emmanuel, do you have any sense of how many of the widely reported %10 unemployed are actually intermittants du spectacle? For awhile, all of my French friends were intermittants, many of them living quite well in what essentially amounted to permanent gigs. But that entire financial structure was maintained by the unemployment bureau.

    I’m guessing it wouldn’t be statistically significant percentage, but remembering my intermittant friends fill out forms pretending to be looking for work while pursuing other projects or flashing their “chomeur” cards at museums made me wonder about the figures.

  5. I always cringe when I read “Europe” this and “Europe” that. Europe doesn’t have “a chronic inability to reform”. Indeed, here in the Nordics we’re doing just fine thank you very much. France and Germany are not Europe.

  6. Such things have changed a lot. Ten years ago the economic patterns were different and ten years before that they were yet different again. There’s no reason to assume that ten years hence that won’t be the case. I remember things like: “Sweden is a communist country in decline”

    On the other hand, without either France or Germany the EU cannot exist. Whether this is true for a few other member states is debateable, but in the former case it is obvious. In that sense France and Germany are, institutionally speaking, Europe.

  7. “Indeed, here in the Nordics we’re doing just fine thank you very much.”

    Absolutely – and that is very much the issue in Andre Sapir’s paper which I posted a link to in the previous thread started by Emmanuel.

    Andre Sapir: Globalization and the Reform of European Social Models – Background document for the presentation at ECOFIN Informal Meeting in Manchester, 9 September 2005
    http://www.bruegel.org/Repositories/Documents/publications/working_papers/EN_SapirPaper080905.pdf

    Summary and commentary here: http://www.euractiv.com/Article?tcmuri=tcm:29-146338-16&type=PolicyNews

    The Nordic countries – and for the purposes of Sapir’s taxonomy, the Netherlands is classed as a Nordic – have managed to combine social protection with market flexibility and achieve successfully performing economies. We need to notice that and learn accordingly.

    The challenging question is whether smaller – but not the large – economies in Europe find it possible to generate the essential national consensus necessary to support and apply policies needed to achieve that combination.

    Independent, unrelated research published a decade ago, reported that the Netherlands had come to an assessment in the 1970s that its economy had lost competitiveness against the pressures of international competition and so policies to restore competitiveness were therefore needed. In the course of the 1980s, average real earnings increased by less than 1% a year in the Netherlands. That was a truly remarkable achievement and it is impossible to believe the larger economies in Europe were remotely capable of emulating that. For economists, see: Nicholas Crafts and Gianni Toniolo (eds): Economic Growth in Europe Since 1945 (Cambridge University Press 1996), which contains many illuminating country studies by internationally renown economists.

  8. Bob B, I love having you as a poster here, but, man, what with you processing all that information you should start your own blog. Seriously, I mean it 🙂

  9. In the course of the 1980s, average real earnings increased by less than 1% a year in the Netherlands. That was a truly remarkable achievement and it is impossible to believe the larger economies in Europe were remotely capable of emulating that.

    Some make quite different claims about emulating that:

    http://www.boeckler.de/pdf/pm_ta_2005_06_13.pdf

    (The authors seem to be affiliated with a trade union.)

  10. Munchau has some points well made;

    1. The fact that he point to the very clear and just objections voiced by student associations that it is unfair to burden them (the young) with all the problems of France’s labour market.

    However, would not the CPE in all theoretical sense incite employers to hire more young people? I mean, it is better to have job with little or no “protection” than no job at all; right?

    2. That the reform needs of France’s society go well beyond the CPE and CNE. This is the most important here but I just don’t see why this argument justifies the scrapping of the CPE. I mean who says French reforms will stop and end with this one. Furthermore I can only with Edward here … reforms of the magnitude needed in France cannot be done in one single legislative process.

    Ohh yes and this one by Bob is also interesting …

    “The Nordic countries – and for the purposes of Sapir’s taxonomy, the Netherlands is classed as a Nordic – have managed to combine social protection with market flexibility and achieve successfully performing economies. We need to notice that and learn accordingly.”

    Ahh yes … the wonders of flexicurity. I have a feeling we are going to hear more of that here at AFOE in the very near future :).

    Read this if you want to know more

    http://www.euractiv.com/Article?tcmuri=tcm:29-153417-16&type=News

  11. Claus – Many thanks for that helpful link. Not all may agree but IMO it is very useful in an international debate on an important issue such as this to have links posted to serious journalism and research. In the last resort, mass demonstrations on the street may flex political muscles or display opposition to policies but the demonstrations do not really help to resolve challenging technical issues.

    Predictably, this Saturday’s edition of The Economist has a special report on France – behind a subscription barrier, sadly. The report seems to me to do a good job of surveying the politics of the situation but it does little to illuminate the economics issues – Claus’ link above is much better at that. What The Economist does include is a bar chart showing responses to international polling across a select group of countries on the question of whether respondents approve/disapprove of capitalism. The chart showed the Chinese to be the most enthusiastic about capitalism and the French the least. The thing is that – correctly or otherwise – the French Communist Party had the reputation across Europe of being the most Stalinist in western Europe and probably in much of eastern Europe as well. Alien observers like myself have never managed to figure out why.

  12. However, would not the CPE in all theoretical sense incite employers to hire more young people? I mean, it is better to have job with little or no “protection” than no job at all; right?

    It also incites to fire before the job becomes permanent. That’s even worse than a limited contract.
    Although unemployment is high, the majority is employed. They have no interest in this law.

  13. But Oliver, even in the terrible depression of the 1930s, the majority always had jobs. The trouble was that a large percentage of the minority who didn’t have jobs spent much or most of their time continually out of work. That inflicted much social misery on a minority as well as economic waste. There is something seriously sick with the French economy if it – unlike most other EU economies – can only function with an average unemployment rate among the under 25s of 20% to 25%.

  14. The trouble was that a large percentage of the minority who didn’t have jobs spent much or most of their time continually out of work. That inflicted much social misery on a minority as well as economic waste

    True, but the majority doeesn’t care. It cared in the 1930es because the situation was a temporary emergency and the joblessness widespread.

    It doesn’t work that way if the misery is concentrated geographically and among members of a subculture .
    Secondly, you cannot assume that the proposed remedy has lower social costs. The conflict in France is intergenerational and the solution will have to be to borne by complacent people in their 40es and 50es.

    can only function with an average unemployment rate among the under 25s of 20% to 25%

    Before you make that claim, estimate what youth unemployment would be elsewhere if the age group were as large.

  15. Edward : 1. I think we all more or less agree on what a much better French labor market would look like : a merging of the differents contracts, less protection against dismissals but much more active employment policies (the idea being that individuals, not specific jobs, must be protected). That alone wouldn’t push the structural rate down a level close to full employment (say 5-6%). But it would be a good start.

    2. In this regard the CPE is economically and politically flawed : it reinforces rather than diminish the fragmented job market; Villepin’s method to pass the law was so inept that it makes further job market reforms less likely; and it is probably runs counter to EU and international law. No, it was a midly bad idea to begin with, and the way it was forced down the throat of the trade unions, the businesses, the parlementary majority and the general public made it a lot worse. I think it is possible to do better than that.

    By the way : two (not exactly heterodox) French labor economists have done an estimate of the likely economics effets of the CPE and the CNE. Results : 70 000 net job creation (good) but a slight loss of welfare and a decreased labor participation rate (bad). Net effect : probably a wash.
    http://www.lesechos.fr/info/medias/200072146.pdf

    Jackmormon : I don’t seem to find more recent figures but in late 2001 there were 120 000 intermittents du spectacle, half of which were unemployed at any given point of time. So out of approximately 2.5 millions unemployed, you have 60 000 unemployed intermittents, meaning close to 2,5% of all unemployed. Not negligible, but not that huge either. Doing the maths, one can find that if the rate of unemployment were the same among than among the general population (12 000 unemployed instead of 60 000), the headline rate would be 0.2 point lower.

    Finnsense : you’re right, of course. Now, since you’re here, I have a question : how come that the unemployment is so high (latest figure available : 8.1%) in Finland compared to other Nordic countries? We always hear about the wonders of the Nokia-driven, IT-enhanced Finnish economy but the rate of unemployment seems to contradict the positive spin. What gives?

  16. Thanks, Emmanuel, for running the numbers on what must have seemed like a casual drive-by request. From what I understand, from the people involved, mind you, so I don’t claim to have unbiased information, there are four kinds of intermittents: 1) those employed by large companies that prefer to use the intermittent statute as shield for provisional contract, 2) those making a good deal of money who pay into the intermittent bourse because striking out in a different statute would be financially insane, 3) those genuinely making ends meet off-and-on as the status was designed, 4) those using the status to earn a decent living by working hard enough to getthe monthly payout to support them during other projects. Categories 1 and 2 support categories 3 and 4, but the monies are all controlled by the intermittent bourse in the unemployment office. Anyways, as you say, a smallish number given the larger social problem.

  17. You’re somewhat oblivious of the fundamental difference between the English-beveridgian system and the French social model, equidistant of the bismarckian-based model and beveridgian-based model -but that’s another story -: the fact that non-wage labor costs are considered as “indirect salary”.

  18. I don’t know in what other country it is acceptable for anyone to cross the borders illegally and DEMAND to be allowed to stay and/or work, or replace American Flags at any level of Society in America with another flag.
    (especially after 9/11) It seems to me that Mexicans are in the process of a war without ever lifting a weapon… it is a shame that instead of fighting for the democracy and the society they would like in their country that they want to walk onto our land and MARCH IN OUR STREETS demand what we have without ever shedding a drop of blood… it is much easier to walk here when they know they won’t have to actually possibly give life or limb and demand what has already been ‘fought and paid for’ by American Men and Women. It is SHAMEFUL.
    In what other country is this acceptable? What do you think the repercussions of that would be? Thousands of Americans walking into ANOTHER country demanding that they let us stay, DEMANDING that they provide for us, DEMANDING that let us work, or else what? If people come into this Nation illegally, THEY ARE ALREADY SHOWING DISREGARD FOR OUR LAWS FROM THE START, THEY ARE NOT ABOVE THEM ! There are an abundance of people that would just love for us to demilitirize our borders, IT WILL MAKE IT MUCH EASIER THESE ‘AMERICANS’ TO HELP ILLEGALS GET ACCROSS … and how are illegals supposedly paying taxes without Social Security Numbers or Tax ID numbers again?????they are already breaking laws and as an illegal what other laws will be broken in the name of ‘survival’ in our country. As it is My daughter and I cannot even walk down the street without being harassed, hissed at, AND followed by these ‘wonderful, hardworking people’ (Men?) …long before this has been a National topic I have been unfortunately saving every penny possible to get myself and my Daughter and my Grandson out of this state and as far north as possible… Just to be able to walk down the street in peace… will it take your family, The Presidents family ? not being able to walk down the street before people care that we would like to live here too, AND ACTUALLY HAVE THE LEGAL RIGHT TO DO SO?… I also work in the Credit field at a bank and I see our system inundated with False Social Security numbers, false names, false information…this is not just an unusual occurrence, this is CONSTANT every day occurrence, and this has happened on a personal level when I took in a child as a her Legal Guardian, when it came time at 18 to get HER credit established , WHO is it that you think had been using her Social Security almost since the time it was issued to her in 1987??? and who do you think was responsible for having to clean up her social security and credit file??? This happy time was STOLEN by someone that wanted instant gratification, so they just take someone elses instead of waiting for their own. Then you have the short sited individuals that say ‘they only want our lowest paying jobs, is that too much?, how long will it be before it is demanded that we know both languages in order for US (ENGLISH SPEAKING AMERICANS) to get work here ??? then what jobs will be available to the AVERAGE ENGLISH (the national language by the way , does anyone remember?? ) SPEAKING CITIZEN???’-My friend it won’t always be those jobs, as the population of illegals grows in each city, who will be left to REPLACE THE AMERICAN FLAG WHEN IT IS TORN DOWN AND REPLACED WITH THEIRS??’ …. and even worse does the president think that terrorists only come in by planes- if we can’t even protect our borders from the ‘poorest and most downtrodden’ people (as they must be, that is why they must come here right?) then how can we trust that they are the only ones who will enter that way? The Mexican government and people lost this land in little thing called a WAR ) HISTORY LESSON ANYONE?? REMEMBER THE ALAMO? THIS CRY WAS A CRY FROM OUR DYING MEN! THUS we have the border, did they forget that they can’t just TRESPASS AND DEMAND? Did the leaders of America forget that we fought for this land (with Mexico) that WE may live here LEGALLY? AND THEY FOUGHT TO NOT BE A PART OF THE USA ? Why don’t they rise up IN THEIR COUNTRY and demand to join the United States Union??? MARCH IN THEIR OWN STREETS? Needless to say that I disagree with Amnesty of Illegals.. what precedence does this set for other countries? Just come in droves to America and cross the borders because nobody cares and demand from a Nation that has shed it’s blood for freedom to provide for them…some say we are all immigrants, the immigrants of that day came here LEGALLY , IT MAKES A MOCKERY OF ANYONE WHO HAS WAITED THEIR TURN! this is not that day NOW AN ESTABLISHED COUNTRY WITH CITIZENS AND BORDERS we are not just some ‘free for all’ at the mercy of anyone who demands to be here!!!! and demands to raise their flag on OUR SOIL…AND THREATENS us by SAYING THEY WILL BRING US TO OUR KNEES BECAUSE WE NEED THEM SO BADLY BY BOYCOTTING AMERICANS (most the people that hear of this boycott, say that is what we are asking them to do, illegals are welcome to boycott our schools, our hospitals). we may actually have less than SIXTY STUDENTS PER CLASS WHAT A SHAME…WHEN THEY SEE THAT WE DON’T COP TO THEIR BULLYING , WHAT THREAT NEXT? These people aren’t asking us to help them THEY ARE DEMANDING THAT WE GIVE THEM WHAT EVER THEY WANT AND NOW. WHY SHOULD AMERICANS BE SO afraid of breaking the laws when they march down our streets and flaunt the fact that THEY THINK they ARE ABOVE IT !? WHO DOES BUSH SERVE? I assure you a Two thousand dollar fine (paid to the government, I MIGHT ADD) is not sufficient trade for going whole days sometimes without hearing anyone speaking my own language or not being able to walk down my street as a Proud UNHARRASSED Citizen of the UNITED STATES OF AMERICA! OUR BORDERS FIRST MR. BUSH. (oh, I forgot he has a ‘list’ of people who will and can harm us, HE’S GOT IT ALL TAKEN CARE OF).
    yes, I served in the Military, as did my Father. ( I AM NOT OPPOSED TO LEGAL IMMIGRATION

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