Posted on 08/22/2002 1:04:49 PM PDT by Stultis
July 15, 2002
In 1999, the socialist administration in France railroaded through a law reducing the "legal" work week from 39 to 35 hours with maintained weekly pay, and severely penalising overtime. This represented a rise of over 11 per cent in hourly labour costs, partly mitigated by a temporary reduction in employers' pension and health insurance contributions, the shortfall to be borne by the general taxpayer.
The measure was said to be a double achievement. It was a great leap forward in social progress, in the humanist transformation of the economy to serve man rather than profit, the advent of the rosy dawn of a better society. It was also a decisive battle won in the war against unemployment, a chronic ill with France being its second-worst victim among all the countries of Western Europe.
That shorter hours would increase employment was an evident logical consequence of the quantity theory of labour, which tells us, plausibly enough, that a given task will be performed either by fewer workers putting in longer hours or more workers putting in shorter ones. This, of course, is a mere truism, which implies (but in no way proves) that the task to be performed (i.e. producing total output) remains constant, just as the quantity theory of money is a mere truism unless it can demonstrate that the velocity of circulation of the relevant quantity remains constant, (or changes only in ways the theory can predict); both are deeply ingrained in the popular mind which unsurprisingly ignores the qualifier clause.
In order to cement the scientific foundations of the measure, the government requested the research department of the Bank of France to say by how much the shorter hours will increase total employment. The Bank came up with the figure of 700,000, adding the poker-faced rider that this is not a forecast, but merely the arithmetic product of applying the parameters supplied by the government. The media took no notice of the rider, still less of its tongue-in-cheek character. In a society less impervious to economics, the job-creating power of reducing the legal work week would have been laughed out of court, as indeed it has been at the time in both Germany and Italy. In a less statist society, the very idea of a legal work week, except perhaps for minors and pregnant women, would probably be regarded as weird, presumptuous and actually impertinent. However, much of French society thought the measure was at worst a good try, and was confidently awaiting its benign effects.
Early in 2002, with the unemployment rate back above 9 percent despite painfully contrived make-work schemes that put an additional 1.5 per cent or so of the working population on government payrolls, the minister of social affairs excused the rise in joblessness by explaining that the American slowdown was catching up with France and the dynamic job-creating effect of the thirty-five hour week has run its course. The official estimate of the total effect was somewhat over 300,000 extra jobs.
Anyone with a modicum of reasoning capacity must have rubbed his eyes in disbelief at this point. How could the government fail to see the blatantly obvious solution? If moving from 39 to 35 hours has done some good but not enough, the thing to do is clearly to move from 35 to 31 hours and if that will still not suffice, one must move calmly and confidently on to 27, 23 or whatever it takes to reach full employment. The mechanism must be as foolproof as the Laffer curve, which tells you that as you reduce tax rates, the tax yield increases and approaches a maximum. It is incomprehensible why the French government at this stage lost the courage of its convictions and failed to push on to full employment. It was bound to have been reached before the law bade everyone to stop working altogether.
In contrast to her great strengths in mathematics and engineering, France has produced few economists of note and shown little interest in those she did produce. If she had paid more attention to two of them, Jean-Baptiste Say and Frederic Bastiat, the thirty-five hour bill might not have passed and the present irreverent comments might not have been written. Say would have taught them that if everybody started to work less, the output of goods and the demand for labour would fall rather than remain constant. More originally, the shamefully neglected and underestimated Frederic Bastiat (who is almost totally unknown in France though moderately well respected in Germany and the United States) could have told them that in economic life there are "things you see and things you do not see". In his most brilliant essay "What Is Seen and What Is Not Seen", he anticipated the concept of opportunity cost and was, to my knowledge, the first economist ever to use and explain it. Reading Bastiat tells us, if nothing else did, that the opportunity cost of creating 300,000 jobs that we supposedly see, is the non-creation or abortion of an unknown, but perhaps much larger, number of jobs that would otherwise have been created in the private sector of the economy,—aborted jobs we did not see.
Nor will we ever see them, at least not these particular jobs. For the replacement of the socialist administration by a centre-right one will not do away with the thirty-five hours which, once on the statute book, has become sacrosanct, a shining milestone of progress along the road of historical necessity. At best, the restrictions on overtime working will be relaxed, but the "legal" work week will never be lengthened. Thirty-five hours have become politically correct, and anyone proposing to do away with it would be committing electoral suicide and be branded for what he was plainly seen to be, a despoiler of "workers' rights".
The strangest aspect of this strange story is that at most only a minority of people, mainly working mothers, have been made manifestly better off by this new "workers' right". A majority have been made worse off, but a majority would certainly vote against its repeal. Stranger still, if that is possible, is that this particular "right", i.e. the legal limitation of the work week, is not a right at all, but the deprivation of workers of their freedom of contract. The law suppresses their freedom to negotiate hours of work with prospective employers individually if possible, by collective bargaining if individual adjustment is not feasible. It is a truly amazing usage of English to call the suppression of an important freedom the extension of "rights,—a usage that seems to shock no one.
There is a strand of public choice theory that holds that at least in democracies, "society" gets the outcomes it prefers. If an outcome is preferred by the majority, it will vote for it. If it is wanted only by a minority interest group, it will be chosen provided the interest of the pressure group is strong enough and the majority relatively indifferent. I believe that my story of the thirty-five hour week is one illustration among many that this is not so. "Workers' Rights" of this kind, and the whole paternalistic redistributive apparatus of the welfare state, is the fundamental cause of the sluggish performance of these economies. Productivity growth in the last decade or more in these nations, which are hardly less clever and educated than Americans, has been half the American rate,—a divergence that, if it persists, should worry them deeply. Unemployment in the most welfarist of these welfare states is disgraceful. However, few people are really conscious of this cause-and-effect relation; and those who are often deny it even to themselves are whistling in the dark that the "European Model" is no less efficient, while in its humanism superior, to the American.
Such beliefs, so necessary for the preservation of European self-esteem along both halves of the political spectrum, are one reason why so many people do not opt for outcomes they would in effect prefer. Another and perhaps stronger reason is the hypnotic, mind-numbing power of the loose and cheap usage of language. The thirty-five hour week is a constraint, not a right. It is freely called a "workers' right",—the usage goes unchallenged and unpunished by derision—and "workers" hardly need to be told that more "rights" are better for them. Can they reasonably be expected to "see the things one does not see", namely the opportunity costs they incur?
Lacking your professional status and inside knowledge, it does appear to me that unfreezing the labor market, and enabling corporate restructuring, is one of the key problems in Europe right now; and an area that is producing, and will continue to produce, the most public resistance and strife. Good for the Froggies if they've managed to make some progress here.
If I'm not taking too much of your time, I (and I'm sure others) would be interested in any further comments. For instance, how are things going in Italy? Rationalizing labor laws was a big priority for the new government, but then the Red Brigades emerged last spring from some 70's time warp and shot and killed the economist Mario Biagi who working on this. I think there was some other economist working on labor reform even before Biagi who was killed. What has the fallout been there?
The intellectual work that was done in this country by people like Milton Friedman and his TV series Free To Choose, not to mention Reagan's busting the unions has never happened in Europe (exception Thatcher who made Reagan look like a weakling with what she did in the UK and also some of the smaller countries esp. the Netherlands). They feel that if you make it easier to fire people that there will obviously be more people fired and therefore fewer people working. In other words, the average European doesn't "get it" and if any politician tries to say it he is immediately cast aside.
I always try to tell people that in America if you get fired you go out, have a beer, and start looking for a new job after you sleep it off. And usually you get a better job, one you're better suited to than the one you left. I've never understood why the Europeans thinkg starting a job at 18 when you know nothing, and then being stuck in that job for the next 40 years is preferable to getting laid off every 7 years, retooling and trying something new. I haven't been following the Italian labor reform as closely as I should. I think that they are doing some things, but it always has to be half measures, with softeners thrown in to cushion the blow.
God, I miss Ronnie and Maggie. As I've said elsewhere recently, I literally shudder to think where we (and I mean the entire world) might be now if they had not come to power when they did.
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