Saturday, May 23, 2009

Signaling

It seems that Claude Allègre will soon enter the government in some unspecified capacity. The rumors have been flying for some time, and Pierre Moscovici claimed the other day to have had confirmation from the man himself. We know that Sarko finds the former Jospin education minister personally sympa, but what signal does he intend to send by appointing Allègre? He is a scientist who denies that global warming is a consequence of human activity--a message contrary to Sarko's stated desire to make Europe a leader in efforts to reverse global warming. Sarko even had the chutzpah to suggest that Obama wasn't up to speed on the issue and that he, Sarko, would be glad to educate him. Presumably Allègre isn't up for an environmental post. As for education, his desire to dégraisser le Mammouth hasn't made him popular in those quarters. So presumably Sarko has something else in mind: research czar, perhaps. But the headlines will be all about his other positions.

Lifted from Comments

Bert commented on the previous post:

How about what we’ve seen recently in France: the self-protective strikes by public sector and other favoured workers, in parallel with the far more self-destructive riots by the “racaille” in the banlieues. The first group are very much an insider class, and boast a string of prime ministerial scalps. The second are marginalised socially and geographically, with youth unemployment rates at or above one in four.

I’d argue that French labour laws show up in the figures whatever point of the cycle you’re at. Why else would you consistently find France at the top end of the productivity tables? It’s not because they’re worker ants – they’ll proudly tell you that themselves. It’s because French capitialism results in a mix of factors of production that’s comparatively light on labour.
In response Quiggin cuffed me with the back of his hand. Its possible that's deserved, for all kinds of reasons, some of them karmic. I don't know if you have a view.


Well, I do have many views, but they don't cohere into a single "position." I agree that the insider-outsider problem has persistently beleaguered France. I'm not sure, however, that countries with more liberal labor markets don't simply disguise the problem: precarious employment exists everywhere, and those who move more fluidly from one short-term service sector job to another in the US acquire an experience profile that makes them unsuitable for anything else. Hence they are soon permanently confined to a range of jobs without a career ladder and with low permanent income prospects. The period out of employment may be lower, but the prospects of advancement, which I would argue are a key to social happiness, are just as bleak as in countries where the dual structure is embedded in laws rather than what Tocqueville might have called "mores," as is the case in the US.

There is also the familiar quarrel over statistics and measurement. America's 2 million incarcerated are not counted among the unemployed. If they were, the youth unemployment figures would swell, though not, admittedly, to French levels.

I agree with Quiggin that labor-market liberalization probably reduces volatility of employment but not necessarily the average level. This, indeed, may turn out to be the leitmotiv of our retrospective reassessment of economic theory in light of the crisis. Volatility not only of employment but also of GDP growth fell with the advent of neoliberalism. The latter phenomenon, known as the Great Moderation, was the focal point of my talk on economic theory and the crisis. Without much argument reduced volatility--following the so-called "smooth growth path"--came to be considered better than uneven growth with its concomitant jagged unemployment curve. This smoothing, largely the result of handing economic management over to central bankers and curtailing the "government business cycle," may have encouraged risk-aversion to dwindle and therefore borrowing to increase to unprecedented levels--with disastrous consequences in the end. If so, smoothing is not a good thing. Volatility--economic fevers, frequent but relatively mild booms and busts--may be better for our economic health than we realized. This is not a position, however; it's an instinct, a gut feeling, that calls for further reflection. I give you my half-baked thought because it's all I have at the moment.

Unemployment

John Quiggin compares US and EU unemployment:

According to the latest data, the unemployment rate in the US was equal to that in the EU-15 in March, and is now likely to be higher. Writing in the NY Times, Floyd Norris refers to the conventional wisdom that flexibility inherent in the American system — it is easier to both hire and fire workers than in many European countries implies that unemployment should be lower (at any given point in the business cycle) in the US than in Europe.

Although this is the conventional wisdom, the research on which it was based (by Lazear and others) has long since been qualified or refuted. I looked at this in the context of the Australian debate about unfair dismissal laws a few years back. Although the early research supported the simple view that more flexibility = more jobs, later research yielded the conclusion that employment protection laws lower the variance of employment and unemployment but have no clear effect on the average levels.