Just Because French Politicians Say They Are Removing Labor Protections to Reduce Unemployment, that Doesn't Mean They are Removing Labor Protections to Reduce Unemployment

May 14, 2016

CEPR

The Washington Post ran a piece on the dispute in France over weakening labor protections for workers. The piece told readers the law removing protections (such as weakening rules on the 35-hour workweek) is:

“…an attempt to combat unemployment — an issue all over Europe that is especially acute in France, where the rate has stubbornly lingered over 10 percent for some time now, just below its high in the mid-1990s.”

It is far from obvious that weakening protections will be an effective way to reduce unemployment. The most obvious reason that France has high unemployment today is weak demand as a result of the austerity policies demanded by Germany and the European Union. If the issue is structural problems in the labor market it’s hard to explain how France was able to have much lower unemployment rates in 2005–2007 when it had all the same structural problems in the labor market.

The piece also exaggerates the extent to which France’s labor market has failed to adjust following the crisis. According to the OECD, the employment to population ratio (EPOP) in France for people between the ages 16 and 65 is 63.9 percent, 1.0 percentage point below its pre-crisis peak of 64.9 percent. By comparison, the EPOP in the United States is 69.3 percent, 2.7 percentage points below its pre-crisis level. The difference is explained by the fact that more U.S. workers have dropped out of the labor market in the last eight years.

There is a similar story among young people (ages 16–24) where the EPOP in the United States is down by 5.3 percentage points. By comparison, in France it is only down by 2.6 percentage points, albeit from a much lower start point. (French college students don’t pay tuition and receive a stipend from the government, as a result, they generally don’t work while in school.)

The most obvious way to reduce unemployment in France would be to increase government spending and/or improve the trade balance by reducing the value of the country’s currency. Both of these options now appear to be precluded by the decisions of the country’s leaders, however; this is the cause of high unemployment in France, not the 35-hour workweek.