Wednesday, May 30, 2007

The Next Labor Front

Sarkozy's proposal to exempt so-called supplementary hours (above the legal 35 hours per week) from the usual payroll taxes has been analyzed by three leading labor economists, Patrick Artus, Pierre Cahuc, and André Sylberger. Libé reports that they warn of possible perverse effects: substitution of hours for workers, cheating by firms (a "moral hazard" created by the incentive to misrepresent ordinary hours as supplementary hours), and costs to the public treasury.

Of course there is a metatheorem of economics, often attributed to Larry Summers, according to which a clever economist can come up with a model to support or oppose any public policy.

Nevertheless, I find Cahuc's work thought-provoking. At the time of the CPE controversy he produced a widely-cited report purporting to show that the effects of the CPE on job creation would be minimal. There's also this interesting paper (with Yann Algann) on why different countries adopt the job protection systems they do: "Job Protection: The Macho Hypothesis." For a very different and to my mind more persuasive view, see Torben Iversen's book Capitalism, Democracy, and Welfare (Cambridge, 2005).

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