March 26, 2006
The French Riots
The Latest French Riots--Posner
There is a considerable irony in the latest French riots, which are mainly by high school, college, and university students protesting a new law that allows employers to fire employees (without cause) during their first two years of employment, if the employee is under 26 years of age. The law, which has not yet gone into effect and will not if the government caves in to the rioters and their supporters (including public-employee unions, especially in transportation), is a response in part to a previous round of more serious riots, by French Muslims of mainly North African origin protesting their economic situation, which includes an astronomical unemployment rate particularly among the young. (Becker and I blogged about those riots on November 13 of last year.) The overall unemployment rate of the under-26 population in France is in excess of 20 percent, which is greater than that of the adult population as a whole (the corresponding rate for the United States is about 10 percent). The reason is that once hired, an employee can be fired only with great difficulty. Employers are naturally reluctant to hire people, mainly young, many of whom haven't worked before (or if they have, it can only have been for a short time), because the likelihood that they will do a good job is difficult to assess unless they have a record of prior employment.
The youth unemployment rate is even higher among Muslims in France, and they are among the rioters, which makes no sense in terms of their economic self-interest. That ethnic French youth should be rioting against a law that would help the Muslims is perhaps surprising given the liberal ideology of most young people in France, yet may be, I will suggest, an expression of rational self-interest.
The youth unemployment rate is largely an artefact of French law. If employers were free to fire employees without cause, as under "employment at will," the most common form of employment contract in the U.S. private sector, they would be much more willing to take a chance on hiring workers without a record of satisfactory performance. Tenuring just-hired workers may be good for those people lucky enough to land a job (though average wages will decline because the expected productivity of a worker will be lower than if he could be fired easily), but like other labor protections it is bad for the marginal workers, such as the Muslims who rioted the last time, and for the economy as a whole. It is part of a complex of unwise laws in Europe that are contributing to Europe's economic stagnation.
The rioting by the non-Muslim students may be rational. For if they are the most likely to land jobs under a legal regime in which a newly hired worker cannot be fired in his or her first two years of employment, they may be harmed by the new law. This cost-benefit analysis of rioting assumes that the cost to the students of rioting is low, but it does appear to be, since apparently they are not being expelled or suspended from school. Even the widespread public support of the students may be rational, if that support is concentrated among workers who have tenured jobs and fear that if the new law, though limited to the under-26 work force, goes into effect and is successful in reducing unemployment, it will be the start of a slippery slope leading eventually to free labor markets on the U.S. and British model.
What is particularly difficult to explain from a rational-choice perspective is the widespread public condonation of riots and strikes as methods of forestalling legislative changes. If the public strongly opposes a law, it is much more efficent for that opposition to be expressed in a parliamentary vote to rescind the law than in riots and work stoppages that cause widespread inconvenience and other costs. The inference, assuming the French people are as rational and well informed as other European peoples--which seems the sensible assumption when one consider the high level of education in France, the nation's wealth, and the many French contributions to science and culture--is that their political system is not functioning properly; and indeed that seems to be the case. Although the new law is, according to public opinion polls, opposed by 68 percent of the population, it was, of course, duly enacted by the French legislature. Although representative democracy does not automatically translate popular majorities into laws, because of the operation of interest groups and the fact that intensity of preference or aversion is not captured in simple majoritarianism, it would be unusual in the United States for a law opposed by more than two-thirds of the population to pass, though a counterexample is the impeachment of President Clinton by a Republican-dominated House of Representatives. It was opposed by about two-thirds of the U.S. population--but of course Clinton was acquitted by the Senate.
A great country can have a lousy government. (Our government is not doing so well these days.) The design of the French government may be unsound. Ordinarily in a parliamentary system, the head of the government is a member of parliament, that is, an elected official; in a presidential system, too, the head of the government is an elected official. But in France, the president, who is elected, appoints the prime minister. The current prime minister, de Villepin, has never held elective office, and this is a considerable weakness from the standpoint of ability to gauge public opinion and assuage public anxieties, and more broadly from the standpoint of perceived legitimacy in a democratic society.
France has a long history of rioting, but so do many other countries (including the United States), which have outgrown it as their governments stabilized. It seems more likely that the French propensity to riot is rooted in problems of government design than in a peculiarly French proclivity for rioting. But this is a tentative suggestion. For there do appear to be French cultural peculiarities, such as the effort to prevent changes in the French language and resistance to the use of English at academic and other conferences, and to foreign takeovers of French companies, that may be related not to the riots as such but to the intensity with which the French resist globalization and its concomitants, which include competition. The new law that has provoked the riots is designed to make labor markets slightly more competitive.
Comment on the French Employment Law Riots-BECKER
The riots by students and union members against the new French labor law can be understood better if the law is placed in the context of the French labor market for the past couple of decades. France has had low rates of employment, and unemployment rates of about 10 per cent for the past fifteen years. Some economists outside of France have blamed this to a significant degree on its rigid labor market. I wrote an Op Ed piece in the early 1990's for Le Monde, the prominent left wing French newspaper, arguing that regulations which made it costly to hire and discharge workers, and high taxes on labor, helped to explain both the low employment and high unemployment.
French politicians, the middle and upper classes, and for a while most of their economists (one French economist replied in Le Monde to my article) rejected this explanation. They claimed that the proposed remedies were too Anglo-Saxon, and that the bad labor market situation was temporary, perhaps due to insufficient aggregate demand for labor.
As sluggish employment continued throughout that decade and into the 21st century not only in France but also in Germany, Italy, and Spain, European economists and some politicians began to change their views. They concluded that lower taxes on labor, greater flexibility in hiring and firing, and other changes were necessary to produce the growth in employment that had occurred in both Great Britain and the United States.
Germany under the Social Democratic leadership of Gerhard Shroeder significantly shortened the duration of unemployment compensation, and introduced other incentives for workers to look for jobs and for companies to hire them. In France, however, the resistance to change has been greater, and the Socialists while they were in power even went backwards by introduced a 35 hours workweek that was supposed to spread a limited number of jobs among more workers. Instead, it appears to have reduced employment. The Conservatives under President Jacques Chirac and Prime Minister Dominique de VIllepin have been slightly better. They modified the 35-hours law, allowed a two-year probationary period for employees at firms with less than 20 employees, followed Spain by introducing short-term employment contracts, and made a few other changes.
Unemployment of young persons in most countries tends to be about twice the overall unemployment rate, and so it is for France. Youth unemployment rate is about 22 per cent, and fewer than 30 per cent of French youth between ages 15-24 have jobs, which is half the rate in Great Britain. Unemployment rates of educated persons are generally much below those of the less educated, which explains why the low educated Muslim youth have unemployment rates well in excess of 30 per cent.
In order to improve economic opportunities for young persons, the law that led to these riots extends the more generous employment rules for small firms to young workers. Under this new law (not yet in effect), workers under age 26 could be discharged within the first two years of their employment without employers having to give any cause.
It might seem strange that these riots have been led by students and union members, groups that are well treated by the French system. University students are favored both because they pay only token tuition, and they have relatively good job prospects after they graduate. Nevertheless, among other acts, students occupied the Sorbonne for three days until they were forcibly evicted.
Posner and I had indicated in our earlier discussion of the riots by young French Muslims that riots are not easy to predict by economic and social variables like unemployment, economic progress, or the degree of discrimination. Still, one line of analysis may explain the heavy participation of both university students and unionists in the current riots. Employment by small companies and of young workers constitutes only a fraction of total employment. Therefore, to make a large dent on the economy's performance, the greater flexibility given to small companies and for employment of young workers has to be followed by other laws that apply to all employees. These include much greater overall flexibility in hiring and firing, lower minimum wages, and reduced taxes on employment.
Therefore, if this law is allowed to be implemented, it is likely to be followed by laws that reduce the employment advantages between the better educated and unionized "insiders" who have good pay and stable employment, and the less educated younger and immigrant workers who tend to be unemployed and have uncertain job tenure. This is why the conflict between employment insiders and employment outsiders can help explain why college students, who are future insiders, and unionists, who are current insiders, make up the bulk of those rioting. Since insiders make up a majority of all employees, it is not surprising that apparently most of the French people want the government to withdraw this law.
Although this explanation might be accepted for union involvement in these protests, does it help understand the participation of students since university students all over the world feel a responsibility to protest and sometimes riot? But consider that students have not taken over the Sorbonne since the famous 1968 student riots that brought down the de Gaulle government. I agree that students like an occasional riot, but usually a cause celebre is needed to galvanize them into action. The new youth labor law was the catalyst this time. That the riots may help university graduates and other insiders by discouraging politicians from taking away some of their advantages is surely an important added bonus.