The Economist this week has two papers (see here and here) on the current protests in France against the new labor bill (called le contrat première embauche). The new law offers more job market flexibility by allowing employer to hire and fire people under 26 more easily. The last November riots and the very high unemployment rate among the youth (23%) triggered this new policy. I have blogged about unemployment in France during the November riots (see here and here), but here are a few more comments on the current situation.
First, one must reaffirm that the number one problem in France (and in many other EU countries) is labor market laws. In terms of policy reform sequencing, deregulating the labor market would be the first thing I would do if I were in the shoes of the PM (followed by tax and public finance reforms). So there is no doubt that Dominique de Villepin is right in seeing labor market rigidities as the source of many social woes in France.
Second, The Economist is right to point out that rather than segmenting the job market into different groups (young and old, etc) one should rather replace the whole of France’s two-tier system. It is clear that a single, more flexible job contract is desirable. In fact, labor contract law should be placed under the general principle of contract law in the Code Civil as it was written in 1804: le contrat est la loi des parties (contracting is the law of the parties to the contract). This being said, it may make sense, as a second best, to allow more flexibility for young people entering the job market if one cannot reform the whole system. New Zealand for instance, has had a two-tier minimum wage law for years. However, general labor laws in New Zealand were deeply reformed in 1991 with the Employment Contract Act (subsequently changed), which re-introduced, to a large extent, freedom of contract in labor relations. The current low unemployment rate in New Zealand has more to do with the general quality of its labor laws rather than with its two-tier minimum wage.
Third, one more time the current events illustrate the difficulty of social change in the EU, especially in the core countries: France, Germany, Italy, and Belgium. These countries have the highest level of resistance to change. Many French students (a recent CSA poll showed that a total of 68% of the French population is against the new law) do not want a more flexible job market; they want to feel secure in the idea that the law addresses the uncertainties of life, even at the price of the high anxieties and the poverty that come with high unemployment. This is probably where James Buchanan’s essay Afraid to Be Free: Dependency as a Desideratum rings most true. It is not so much paternalism that classical liberals and other libertarians should be concerned with, but the human desire not to be in charge and to reject responsibility onto others (i.e. the State). To use Buchanan’s words, socialism now survives in the form of parentalism; that is, the desire of many human beings to remain children all their lives. [On this topic, and if you read French, see Mathieu Laine's new book: La Grande Nurserie.]