Today's Difference In Unemployment Rates
What accounts for the today's difference in unemployment rates between France and US?
France has one of the highest unemployment rates out of the industrialized nations. It has been at around 10% for the last two decades. Many French workers will go through unemployment at some point in their career, and it is an especially high probability for the low skilled workers and the young. There are many possible reasons for why France has a much higher unemployment rate than the US and different groups have different interpretations. Some say it's because of differences in levels of economic performance, others that it is because the government has spend so much on getting the economy ready for Europe's single currency, that there is no money for …show more content…
jobs. More realistically though, it is because the French government excessively regulates the labor market which tends to make it very rigid. The government with its legislation directly and indirectly limits firms in their hiring and it protects the employed rather than the unemployed. A comparison of the evolution of the data for unemployment in US and France shows an overwhelming difference in the unemployment rates between the two countries. In the last few years, the same way it has been in the last two decades, the rate of unemployment in the US has been far inferior to the rate of France. The average standardized rate of unemployment for the period of 1996 to 2002 for France is 10.6% whereas it is 4.8% for the US (www.oecd.org).
However, the rate of unemployment in the US increased from 4.2% in 1999 to 5.8% in 2002 while it decreased from 11.2% to 8.7% in France during the same period. But the downward trend of France's unemployment rate switched around as France saw its rate increase from 9% in last semester of 2002 to 9.3% in first semester of 2003. The US saw theirs remain more stable although the OECD records a small increase from 5.9% to 6% in the same period and somewhat of a peak at 6.4 % for June 2003 (Penn World Tables). On top of that net difference, an alarming fact for French policymakers is that French workers take five times longer than their US counterparts to find new jobs although the French are five times less likely to become unemployed (http://www.cepr.org/pubs/EEP/articles/frenchco.htm).
But this difference in rates, high as it may be, is actually not even realistic. The reason is that the two countries have a different method of estimating the unemployment rate. In France, the unemployment rate is calculated by the ratio of people who are unemployed and who are actively looking for a full-time job to the total active population (people in age and in condition to work). The US, in contrast, uses the international standard of employment which is the percentage of the working-age population holding full-time jobs, to derive their unemployment rate. Therefore, the people who are unemployed and are not actively seeking a full-time job are counted as unemployed for the US unemployment rate but not for the French.
In the US, are counted as unemployed any person of working-age who doesn't have a job. In France it is the same in principle, but there are exceptions to the rule. For example, "not counted in the jobless figures in France, are people who have accepted early retirement" (International Herald Tribune, Joseph Fitchett, August 1st 97). Also, a recent accounting change in France adopted by the previous government, no longer counts as ''unemployed'', people who work more than 20 hours a week, even in low-paid part-time internships. So, for all these reasons, the difference in rates across the two countries in reality is even more important than what is officially reported.
It is obvious that unemployment is an economic reality that can be completely eliminated in no country. Each country has its natural rate of unemployment which is the optimal rate for its economy and if its government tries to lower that rate too much, it will disturb its economy by increasing inflation (according to macroeconomic theory, there is a tradeoff between unemployment and inflation; that is, if the government tries to achieve lower inflation for example, it will have to tolerate a higher unemployment rate). Unemployment exists, even in the countries with the most efficient economies and it is made up frictional and structural; frictional unemployment exists because of the time it takes for workers to be rehired after being fired or leaving a job. Structural unemployment exists because the education and training of the unemployed are not adequate to the employers' needs. Another cause for structural unemployment in some countries is the absence of more efficient infrastructure (recruiting offices) that can match demanders and suppliers of labor.
A comparison of the data for economic performance between France and US shows that the US economy nowadays is largely more stable and efficient than the French economy. It is therefore much easier for US employers to keep jobs filled and create new positions thereby hiring more. For example, proportionally to the population size there is more production in US and therefore more labor required. According to the Penn World Tables, France's average gdp per capita for the period of 1992 to 2002 is 21061.3 in 1996 prices whereas it is 30558.4 in the US. Also, US have seen its GDP grow faster than France. For the second semester of 2003, US's growth rate of output was 3,4% while France's was 0.5%. The growth rate of gdp/capita is also higher in the US than in France. For the period of 1991 to 2000, the US growth rate of GDP/Capita was 1.94% while the French was 0.94%, in 1996 prices.
A key difference between the two economies is the relative value of work by the average worker. In the US, on average, work is a more important part of a person's life than it is in France. The general mentality in the US is "live to work", which means they value their job as a more important part of their lives, they enjoy it more and the more money they make the better off they are. For example, "last year people were asked if they would continue working even if they had enough money to live comfortably for the rest of their lives. Sixty-eight percent said they would still work. Another poll asked whether workers would prefer more time off or more money. Fifty-six percent said they wanted more money rather than more free time" (http://www.ncpa.org/edo/bb/2003/bb100803.html). US workers in general, are satisfied with the number of hours they work and have no desire to work less.
In the French mentality however, people "work to live", which means they work because they need income to be able to live and the less they work the better off they are. The workers strong support of the government's reduction of the working week from 39 hours to 35 and the outcry among French workers caused by the proposition to raise length of working life to retire with full pension is enough to illustrate this point (The Economist, June 5th 1999). US workers on average work 15% more hours than French workers but the long hours don't seem to bother them as much as the French. The US average worker's workload has remained stable throughout the last two decades while France's average workload has steadily decreased during the same period (The Economist, June 5th 1999) which shows that French workers were able to pressure their government into reducing the workweek, making it more agreeable to them.
The fact that US workers value work more means that they search harder for jobs. It can also mean that unemployed people in the US will, by default, settle for a job that isn't exactly what they were looking for or for a smaller wage than anticipated. This hunger for professional positions and the flexibility of the unemployed workers makes the labor market and the economy as a whole more flexible and the unemployed in the US finds jobs much more easily.
Another factor that contributes to the inflexibility of the French labor market is the existence and the importance of trade unions which are powerful and resourceful work councils that pool strength to have negotiating power and provide labor protection for the workers.
The most important French trade unions are the CGT (General Confederation of Labor), the CFDT(French Democratic Confederation of Labor) and the CGT-FO(General Confederation of Labor). 10% of French workers belong to trade unions and they are covered by collective bargaining agreements which protect their job position. However, 90% of all French workers are covered by these same collective bargaining agreements which means first, that 80% of French workers free ride and enjoy the benefits of the trade unions' effort and second, that the workers have an even high power of negotiation.
Trade unions in France have weight for negotiation within the firms but they can also influence directly government policies; "every effort by the French government to take acquired rights away from privileged workers such as truckers and railway workers has ended in failure" (The economist April 5th 1997). And because employers are aware that unions have power and desire to fight for their own interests (demand for wage raises for example) and they know that these interests are often opposite to theirs, the employers have a strong incentive to not hire or to hire the strict …show more content…
minimum.
The French government is a conservative one; it is attached to its social model and thinks its people are as well. It has set of laws for their model which regulates excessively the labor and the product market. The rationale for this excessive regulation is to protect workers especially the low-skilled and to deal with unemployment but the system ends up favoring those that are in work and not those who are unemployed and are looking for job. This regulation, whatever form it might take, makes the labor market very inflexible and it is difficult for employers and employees to meet and come to agreements in the marketplace.
For example, the French system relies on the imposition of unbearably high social security charges on the employers. "If a French firm takes on an employee at say FFr. 9000 a month, FFr. 3000 of that will be paid by firm in social security payments" (The Economist, November 25th 1995). These high welfare payments make it costly for a firm to hire or create a new position. The "law on Social modernization" published in January 2002, which further strengthened the role of trade unions and provided even more labor protection, made it harder than ever for firms to fire which in turn deterred employers from hiring. Another factor that keeps the hiring low in France is the relative importance of firing costs. Employers know that there are high costs associated with the firing of an employee. So instead of taking the risk of hiring a person and hoping he or she will perform well, they would rather be safe and not hire at all. So this system benefits those who are employed but not those who are looking for the jobs. In the US however, such exorbitant charges don't exist for employers; so the incentive to keep payroll to minimum doesn't exist as it is less costly to hire someone or create a new position.
Another particularity of France is that it has one of the highest minimum wages in the world while the US's is average. This means it costs French employers a lot more to hire than it costs US employers. This is a problem mostly for the young and low wage workers, because youngsters and recently laid-off low-wage workers constitute the majority of the new incoming workforce and they are the ones that encounter the difficulties in finding jobs on a saturated market (http://www.cepr.org/pubs/EEP/articles/frenchco.htm). A study commissioned by the senate concluded that a 20% cut in the minimum wage would bring jobs to 136,000 youngsters which is not negligible.
Another key difference between the two systems is the fact that in France, the unemployed enjoy considerable benefits that are inexistent or relatively small in the US. The French unemployment scheme, for instance , "pays anyone who loses his job almost 70%(net) of his previous wage for nine months, and then less by stages" whereas for the US's scheme pays these same people 50% of previous pay for 6 months (The Economist, November 25th 1995). Unemployed French workers are also eligible for the RMI (minimum income for inclusion in society which is a little less than 2000 French francs), family allowances, healthcare and housing benefits (The Economist, November 25th 1995). As a result, French unemployed have an incentive to stay out of work and not actively look for a job in order to be eligible for these benefits.
The existence of these generous benefits is one of the major causes for the high rate of unemployment in France and the fact that these workers stay unemployed as long as they can to enjoy the benefits leads to another problem. It often means that when benefits run out for a worker, he or she becomes less marketable because these months spent passively receiving benefits could have been used in a productive way (training, education). This increases the long run long term unemployment which is even a bigger problem. Another problem with these incredibly high unemployment benefits is that the government spends a lot of money on up keeping them when it could be spending some of it on more active and efficient labor markets policies.
The high unemployment rate in France is its most serious domestic issue and the debates on how to deal with this problem are heated. Different political parties offer different solutions to the problem but the truth is, they don't know for sure; unemployment has been a serious issue for the past two decades and progress in the area has been insignificant. In February of 2000, the government measure to decrease the working week from 39 hours to 35 started taking effect in France. This measure, initiated by former socialist Prime Minister Lionel Jospin, meant all firms of more than 20 employees needed to enforce the reduction of the working week of their employees to make room for more people to be employed. "The socialists figured that there was only so much work to do, so if people were only allowed to work 35 hours per week, rather that 40 hours, then this meant that 8 workers would be needed to do the work that 7 workers did previously" (the economist, june5th 1999). Consequently, the amount of output per worker and productivity decreased. At the same time, wages stayed the same because the government couldn't reduce it without angering the workers.
The government was then forced to provide subsidies or tax relief to the firms that followed the new legislation and hired new workers so as to compensate for the losses due to the increased payroll (http://www.ncpa.org/edo/bb/2003/bb100803.html).
Although the effects of this legislation on the unemployment rate are still hard to define as we will need more time to be able to tell, one thing is sure; the government underestimated the public costs of such a program. The costs of aiding financially the firms to compensate them for their higher labor costs are estimated at 35 billion French francs per year(the economist, june5th
1999).
Unemployment in France has been an important issue for a long time now and it seems like the upward trend of the unemployment rate won't be reversed in the short term. If the French government wants to lower its unemployment rate it will need to continue deregulating the labor market and work hand in hand with firms to make that market more flexible (with short-term contracts, part-time jobs). For example, it should provide incentives for firms to hire long-term, to hire low-skilled workers or to create new jobs by proposing a cut in social security contributions in case of agreement. The current government with Raffarin as Prime Minister seems to want to come to terms with businesses because it realizes that it is by relaxing its labor policies on enterprises that jobs will be created. There is a hope for the French unemployed but the problem won't be resolved anytime in the next few years.
Sources:
- http://management.journaldunet.com/repere/chomage.shtml
- http://www.meilleurtaux.com/savoir/taux/analyse/analyse.shtml
- http://quickstart.clari.net/qs_se/webnews/wed/dm/Qfrance-economy.Rhkc_DOV.html
- http://www.ncpa.org/edo/bb/2003/bb100803.html
- http://www.OECD.org
- http://www.OCDE.org
- http://pages.stern.nyu.edu/~nroubini/Emu/fn6936.html
- International Herald Tribune, Joseph Fitchett, August 1st 97
- Penn World Tables
- The Economist, June 5th 1999
- The Economist, November 25th 1995
- The Economist, November 16th 2002
- The Economist, April 14th 2001
France has one of the highest unemployment rates out of the industrialized nations. It has been at around 10% for the last two decades. Many French workers will go through unemployment at some point in their career, and it is an especially high probability for the low skilled workers and the young. There are many possible reasons for why France has a much higher unemployment rate than the US and different groups have different interpretations. Some say it's because of differences in levels of economic performance, others that it is because the government has spend so much on getting the economy ready for Europe's single currency, that there is no money for …show more content…
jobs. More realistically though, it is because the French government excessively regulates the labor market which tends to make it very rigid. The government with its legislation directly and indirectly limits firms in their hiring and it protects the employed rather than the unemployed. A comparison of the evolution of the data for unemployment in US and France shows an overwhelming difference in the unemployment rates between the two countries. In the last few years, the same way it has been in the last two decades, the rate of unemployment in the US has been far inferior to the rate of France. The average standardized rate of unemployment for the period of 1996 to 2002 for France is 10.6% whereas it is 4.8% for the US (www.oecd.org).
However, the rate of unemployment in the US increased from 4.2% in 1999 to 5.8% in 2002 while it decreased from 11.2% to 8.7% in France during the same period. But the downward trend of France's unemployment rate switched around as France saw its rate increase from 9% in last semester of 2002 to 9.3% in first semester of 2003. The US saw theirs remain more stable although the OECD records a small increase from 5.9% to 6% in the same period and somewhat of a peak at 6.4 % for June 2003 (Penn World Tables). On top of that net difference, an alarming fact for French policymakers is that French workers take five times longer than their US counterparts to find new jobs although the French are five times less likely to become unemployed (http://www.cepr.org/pubs/EEP/articles/frenchco.htm).
But this difference in rates, high as it may be, is actually not even realistic. The reason is that the two countries have a different method of estimating the unemployment rate. In France, the unemployment rate is calculated by the ratio of people who are unemployed and who are actively looking for a full-time job to the total active population (people in age and in condition to work). The US, in contrast, uses the international standard of employment which is the percentage of the working-age population holding full-time jobs, to derive their unemployment rate. Therefore, the people who are unemployed and are not actively seeking a full-time job are counted as unemployed for the US unemployment rate but not for the French.
In the US, are counted as unemployed any person of working-age who doesn't have a job. In France it is the same in principle, but there are exceptions to the rule. For example, "not counted in the jobless figures in France, are people who have accepted early retirement" (International Herald Tribune, Joseph Fitchett, August 1st 97). Also, a recent accounting change in France adopted by the previous government, no longer counts as ''unemployed'', people who work more than 20 hours a week, even in low-paid part-time internships. So, for all these reasons, the difference in rates across the two countries in reality is even more important than what is officially reported.
It is obvious that unemployment is an economic reality that can be completely eliminated in no country. Each country has its natural rate of unemployment which is the optimal rate for its economy and if its government tries to lower that rate too much, it will disturb its economy by increasing inflation (according to macroeconomic theory, there is a tradeoff between unemployment and inflation; that is, if the government tries to achieve lower inflation for example, it will have to tolerate a higher unemployment rate). Unemployment exists, even in the countries with the most efficient economies and it is made up frictional and structural; frictional unemployment exists because of the time it takes for workers to be rehired after being fired or leaving a job. Structural unemployment exists because the education and training of the unemployed are not adequate to the employers' needs. Another cause for structural unemployment in some countries is the absence of more efficient infrastructure (recruiting offices) that can match demanders and suppliers of labor.
A comparison of the data for economic performance between France and US shows that the US economy nowadays is largely more stable and efficient than the French economy. It is therefore much easier for US employers to keep jobs filled and create new positions thereby hiring more. For example, proportionally to the population size there is more production in US and therefore more labor required. According to the Penn World Tables, France's average gdp per capita for the period of 1992 to 2002 is 21061.3 in 1996 prices whereas it is 30558.4 in the US. Also, US have seen its GDP grow faster than France. For the second semester of 2003, US's growth rate of output was 3,4% while France's was 0.5%. The growth rate of gdp/capita is also higher in the US than in France. For the period of 1991 to 2000, the US growth rate of GDP/Capita was 1.94% while the French was 0.94%, in 1996 prices.
A key difference between the two economies is the relative value of work by the average worker. In the US, on average, work is a more important part of a person's life than it is in France. The general mentality in the US is "live to work", which means they value their job as a more important part of their lives, they enjoy it more and the more money they make the better off they are. For example, "last year people were asked if they would continue working even if they had enough money to live comfortably for the rest of their lives. Sixty-eight percent said they would still work. Another poll asked whether workers would prefer more time off or more money. Fifty-six percent said they wanted more money rather than more free time" (http://www.ncpa.org/edo/bb/2003/bb100803.html). US workers in general, are satisfied with the number of hours they work and have no desire to work less.
In the French mentality however, people "work to live", which means they work because they need income to be able to live and the less they work the better off they are. The workers strong support of the government's reduction of the working week from 39 hours to 35 and the outcry among French workers caused by the proposition to raise length of working life to retire with full pension is enough to illustrate this point (The Economist, June 5th 1999). US workers on average work 15% more hours than French workers but the long hours don't seem to bother them as much as the French. The US average worker's workload has remained stable throughout the last two decades while France's average workload has steadily decreased during the same period (The Economist, June 5th 1999) which shows that French workers were able to pressure their government into reducing the workweek, making it more agreeable to them.
The fact that US workers value work more means that they search harder for jobs. It can also mean that unemployed people in the US will, by default, settle for a job that isn't exactly what they were looking for or for a smaller wage than anticipated. This hunger for professional positions and the flexibility of the unemployed workers makes the labor market and the economy as a whole more flexible and the unemployed in the US finds jobs much more easily.
Another factor that contributes to the inflexibility of the French labor market is the existence and the importance of trade unions which are powerful and resourceful work councils that pool strength to have negotiating power and provide labor protection for the workers.
The most important French trade unions are the CGT (General Confederation of Labor), the CFDT(French Democratic Confederation of Labor) and the CGT-FO(General Confederation of Labor). 10% of French workers belong to trade unions and they are covered by collective bargaining agreements which protect their job position. However, 90% of all French workers are covered by these same collective bargaining agreements which means first, that 80% of French workers free ride and enjoy the benefits of the trade unions' effort and second, that the workers have an even high power of negotiation.
Trade unions in France have weight for negotiation within the firms but they can also influence directly government policies; "every effort by the French government to take acquired rights away from privileged workers such as truckers and railway workers has ended in failure" (The economist April 5th 1997). And because employers are aware that unions have power and desire to fight for their own interests (demand for wage raises for example) and they know that these interests are often opposite to theirs, the employers have a strong incentive to not hire or to hire the strict …show more content…
minimum.
The French government is a conservative one; it is attached to its social model and thinks its people are as well. It has set of laws for their model which regulates excessively the labor and the product market. The rationale for this excessive regulation is to protect workers especially the low-skilled and to deal with unemployment but the system ends up favoring those that are in work and not those who are unemployed and are looking for job. This regulation, whatever form it might take, makes the labor market very inflexible and it is difficult for employers and employees to meet and come to agreements in the marketplace.
For example, the French system relies on the imposition of unbearably high social security charges on the employers. "If a French firm takes on an employee at say FFr. 9000 a month, FFr. 3000 of that will be paid by firm in social security payments" (The Economist, November 25th 1995). These high welfare payments make it costly for a firm to hire or create a new position. The "law on Social modernization" published in January 2002, which further strengthened the role of trade unions and provided even more labor protection, made it harder than ever for firms to fire which in turn deterred employers from hiring. Another factor that keeps the hiring low in France is the relative importance of firing costs. Employers know that there are high costs associated with the firing of an employee. So instead of taking the risk of hiring a person and hoping he or she will perform well, they would rather be safe and not hire at all. So this system benefits those who are employed but not those who are looking for the jobs. In the US however, such exorbitant charges don't exist for employers; so the incentive to keep payroll to minimum doesn't exist as it is less costly to hire someone or create a new position.
Another particularity of France is that it has one of the highest minimum wages in the world while the US's is average. This means it costs French employers a lot more to hire than it costs US employers. This is a problem mostly for the young and low wage workers, because youngsters and recently laid-off low-wage workers constitute the majority of the new incoming workforce and they are the ones that encounter the difficulties in finding jobs on a saturated market (http://www.cepr.org/pubs/EEP/articles/frenchco.htm). A study commissioned by the senate concluded that a 20% cut in the minimum wage would bring jobs to 136,000 youngsters which is not negligible.
Another key difference between the two systems is the fact that in France, the unemployed enjoy considerable benefits that are inexistent or relatively small in the US. The French unemployment scheme, for instance , "pays anyone who loses his job almost 70%(net) of his previous wage for nine months, and then less by stages" whereas for the US's scheme pays these same people 50% of previous pay for 6 months (The Economist, November 25th 1995). Unemployed French workers are also eligible for the RMI (minimum income for inclusion in society which is a little less than 2000 French francs), family allowances, healthcare and housing benefits (The Economist, November 25th 1995). As a result, French unemployed have an incentive to stay out of work and not actively look for a job in order to be eligible for these benefits.
The existence of these generous benefits is one of the major causes for the high rate of unemployment in France and the fact that these workers stay unemployed as long as they can to enjoy the benefits leads to another problem. It often means that when benefits run out for a worker, he or she becomes less marketable because these months spent passively receiving benefits could have been used in a productive way (training, education). This increases the long run long term unemployment which is even a bigger problem. Another problem with these incredibly high unemployment benefits is that the government spends a lot of money on up keeping them when it could be spending some of it on more active and efficient labor markets policies.
The high unemployment rate in France is its most serious domestic issue and the debates on how to deal with this problem are heated. Different political parties offer different solutions to the problem but the truth is, they don't know for sure; unemployment has been a serious issue for the past two decades and progress in the area has been insignificant. In February of 2000, the government measure to decrease the working week from 39 hours to 35 started taking effect in France. This measure, initiated by former socialist Prime Minister Lionel Jospin, meant all firms of more than 20 employees needed to enforce the reduction of the working week of their employees to make room for more people to be employed. "The socialists figured that there was only so much work to do, so if people were only allowed to work 35 hours per week, rather that 40 hours, then this meant that 8 workers would be needed to do the work that 7 workers did previously" (the economist, june5th 1999). Consequently, the amount of output per worker and productivity decreased. At the same time, wages stayed the same because the government couldn't reduce it without angering the workers.
The government was then forced to provide subsidies or tax relief to the firms that followed the new legislation and hired new workers so as to compensate for the losses due to the increased payroll (http://www.ncpa.org/edo/bb/2003/bb100803.html).
Although the effects of this legislation on the unemployment rate are still hard to define as we will need more time to be able to tell, one thing is sure; the government underestimated the public costs of such a program. The costs of aiding financially the firms to compensate them for their higher labor costs are estimated at 35 billion French francs per year(the economist, june5th
1999).
Unemployment in France has been an important issue for a long time now and it seems like the upward trend of the unemployment rate won't be reversed in the short term. If the French government wants to lower its unemployment rate it will need to continue deregulating the labor market and work hand in hand with firms to make that market more flexible (with short-term contracts, part-time jobs). For example, it should provide incentives for firms to hire long-term, to hire low-skilled workers or to create new jobs by proposing a cut in social security contributions in case of agreement. The current government with Raffarin as Prime Minister seems to want to come to terms with businesses because it realizes that it is by relaxing its labor policies on enterprises that jobs will be created. There is a hope for the French unemployed but the problem won't be resolved anytime in the next few years.
Sources:
- http://management.journaldunet.com/repere/chomage.shtml
- http://www.meilleurtaux.com/savoir/taux/analyse/analyse.shtml
- http://quickstart.clari.net/qs_se/webnews/wed/dm/Qfrance-economy.Rhkc_DOV.html
- http://www.ncpa.org/edo/bb/2003/bb100803.html
- http://www.OECD.org
- http://www.OCDE.org
- http://pages.stern.nyu.edu/~nroubini/Emu/fn6936.html
- International Herald Tribune, Joseph Fitchett, August 1st 97
- Penn World Tables
- The Economist, June 5th 1999
- The Economist, November 25th 1995
- The Economist, November 16th 2002
- The Economist, April 14th 2001