Monday, June 25, 2007

Reconciling with Globalization

Dani Rodrik cites a new paper claiming that "big government (measured by share of government spending in GDP)" makes risk-averse individuals more comfortable with free trade and globalization. This finding is based on survey data, but the underlying hypothesis is that government spending provides insurance against the risks of openness and thus helps to reconcile nervous people to the free market. "Our results provide microeconomic evidence consistent with the long-standing argument that the state and the market are in fact complementary," the authors assert.

This finding is hard to square with the fact that, according to the European Commission (see here), France has the highest level of government spending in the EU (53.2 percent of GDP). Yet any number of indicators, beginning with the "no" vote on the European referendum, suggest that French anxiety about economic openness is high.

Minimum Wage

Here's an astonishing statistic: 17% of French private sector workers earn the minimum wage, which the government has just announced will be raised from 985 euros per month to 1,000 euros, a 2.1 percent increase, just keeping pace with inflation (despite earlier hints that SMIC earners would receive a coup de pouce, or fillip to their purchasing power). Source: Le Monde.

Contrast this with the US, where only 2.5 percent of hourly workers receive the minimum wage or less (permissible because of legal exemptions). Source: BLS.

In France there are 2.5 million smicards. In the US, with 5 times the population, there are only 1.9 million workers in the bottom wage category. To be sure, the American minimum wage is lower than the European average, comparable with that of Greece (see here), despite the considerably higher US cost of living.

These figures suggest that Ségolène Royal was quite right to criticize the Socialist platform plank calling for an increase of the SMIC to 1,500 euros. It would quite simply be impossible to grant a 50 percent wage increase overnight to 17% of private sector workers. But the fact that so many work for the minimum wage is frankly scandalous, and it does lend weight to cjb's contention that a high wage bill is not the root cause of France's economic difficulties.

About Readers

I thought you might be interested to see some statistics on visits to this blog. Over the past two weeks, there have been 1,821 unique visitors from 48 countries (stats courtesy Google Analytics). More than 60 percent return for more than one visit. The average US visitor spends nearly 2 1/2 minutes reading per visit; the average French reader nearly 5 minutes. Is that because the French read English more slowly, or because they're more interested in French politics?! I leave it to political science to supply a model.

Country Visitors Percent of total Avg. Time on Site
United States 1059 58.15485997 144
France 362 19.87918726 296
Canada 121 6.644700714 148
United Kingdom 106 5.820977485 98
Australia 26 1.42778693 172
Netherlands 23 1.263042284 8
Greece 16 0.878638111 262
Belgium 11 0.604063701 1
Italy 10 0.549148819 257
Germany 8 0.439319055 29
Ireland 8 0.439319055 69
Spain 6 0.329489292 34
Portugal 6 0.329489292 18
India 5 0.27457441 0
Mali 5 0.27457441 105
Japan 4 0.219659528 4
Denmark 3 0.164744646 0
Austria 3 0.164744646 17
Singapore 3 0.164744646 47
Turkey 2 0.109829764 0
Czech Republic 2 0.109829764 0
Taiwan 2 0.109829764 149
New Zealand 2 0.109829764 66
China 2 0.109829764 27
Russia 2 0.109829764 0
Norway 2 0.109829764 144
Ukraine 1 0.054914882 907
Sri Lanka 1 0.054914882 0
Georgia 1 0.054914882 0
Luxembourg 1 0.054914882 17
Mexico 1 0.054914882 0
Cyprus 1 0.054914882 169
Pakistan 1 0.054914882 0
Finland 1 0.054914882 0
Reunion 1 0.054914882 0
Thailand 1 0.054914882 0
Switzerland 1 0.054914882 0
(not set) 1 0.054914882 55
Israel 1 0.054914882 85
Bosnia and Herzegovina 1 0.054914882 0
South Korea 1 0.054914882 0
Sweden 1 0.054914882 68
Nigeria 1 0.054914882 0
Brazil 1 0.054914882 0
Indonesia 1 0.054914882 0
Uruguay 1 0.054914882 0
Netherlands Antilles 1 0.054914882 0
Barbados 1 0.054914882 0

The European Treaty

There is a curious bifurcation in the media coverage of the new EU treaty. In France the agreement has been heralded as a triumph for Sarkozy, who, with no little help from his breathless press aide David Martinon's serial briefings, has been portrayed as the indispensable orchestrator of the agreement. Today the New York Times echoes the French account. But the German papers, as exemplified by this FAZ narrative, not only take a less triumphalist tone but also ironize about Sarkozy's role, allowing that he "let it be known that he could live with fewer German votes." In Germany, then, Merkel's success in obtaining an agreement is tempered by recognition of the cost in German influence, and Sarkozy is the hereditary enemy rather than the architect of the general good. And the Times reports on British glee at having gotten a great deal for the UK because the Germans were "transfixed" by Poland.

Purchasing Power: Perception and Reality

The French believe that their purchasing power has declined, whereas in fact, according to INSEE, it is increasing at an accelerating rate: +1.7% in 2005, +2.3% in 2006. Here is yet another sign that Sarkozy is likely to reap the benefits of a favorable economic conjuncture. As perception catches up with reality, the credit will go to the energumen who seems to cause the evil tide to recede, rather than to the moon and the rotation of the earth, at least among the infidels who deny that fate resides in the alignment of celestial bodies.

More on the Social VAT

The consumers' group UFC-Que Choisir argues, contrary to the defense of the social VAT that I posted yesterday, that the effect would be inflationary, because capital-intensive producers could not reduce prices sufficiently to offset the VAT increase; because the cost of foreign goods would necessarily increase (but this neglects the possibility of substitution of domestic for foreign products); and because firms, especially in less competitive sectors, would be tempted to increase their margins rather than reduce prices to offset the tax increase. The group also rejects the government's argument that the shift from payroll charges to VAT would bring French tax policy more into line with other European government policies. The French VAT is already higher than the German, even after the recent German increase. UFC-Que Choisir prefers an increase in the French income tax, which is much lower than the European average.

Of course if the Socialists had proposed an income tax hike as more equitable than a VAT increase, they wouldn't have reaped whatever electoral benefit they may have derived from the polemic against the social VAT.

Unemployment Statistics

Anyone who follows French politics knows that there has been a long-running polemic over the accuracy of the very politically sensitive statistics regarding employment and unemployment. Governments of both the right and left are regularly accused of cooking the numbers. The current government appears to be seeking a consensus on this very important instrument. See the article here.