Friday, September 7, 2007

The Labor Market Again

Dani Rodrik calls attention to a paper that questions the very logic on which Sarkozy's labor-market reform strategy is based.


Michel Rocard disclosed today that Sarkozy had asked him to head a mission to reflect on France's relations with the countries of the Mediterranean rim, obviously with an eye to defining more clearly the "Mediterranean Union" that the president envisions as the centerpiece of his reorientation of French policy vis-à-vis North Africa and the Middle East. Rocard says he considered the offer but declined after some discussion about the relation of the European Union to the project. Rocard wanted to pursue discussions with Europe first, before proceeding to talks with countries outside the region. Sarkozy apparently has something different in mind. It would be too much to infer from this that the French president wants to circumvent the EU and establish a special relationship with the Mediterranean Union he has proposed, but this difference of opinion or appreciation will undoubtedly raise skeptical eyebrows in other European capitals as to precisely what Sarkozy has up his sleeve.

The Heart of the Matter

With la rentrée upon us, we are now getting into the heart of Sarkozy's economic program: labor-market reform. It's interesting to note that an article in Le Figaro presents the unions and the MEDEF as taking different approaches to the matter, the employers wanting to put "flexibility" first whereas the unions prefer to stress "career security" (if I may venture a translation of the phrase sécurisation du parcours professionnel). Yet if you look at the program put forward by Olivier Blanchard, about which I wrote the other day, you'll see that he, too, puts "career security" as step one, and I believe that on this matter the government is listening to Blanchard. Surely it makes sense to have the sugar coating in place before asking the patient to swallow the bitter pill.

So what exactly is sécurisation du parcours professionnel? Essentially it's a realistic response to the inescapable fact that workers are unlikely in the current environment to spend their entire careers with one firm--thus the phrase "career security" rather than "job security." Hence there need to be "aids to job mobility," as Blanchard delicately puts it: not only a revamping of unemployment benefits but also ongoing training more relevant to the needs and capabilities of both workers and employers; support for job searches and matching workers to employers; recognition of worker seniority and continuation of benefits across firms; etc. This is the "soft power" side of employer-employee relations, to use the jargon of international relations. It should not be impossible to reach agreement here, so this is a good starting place for the negotiations now under way.

The government also announced yesterday that it is going to attack a thornier matter, the reform of the so-called special retirement regimes. These plans cover about 500,000 active workers and 1.1 million retirees, mainly employees of the SNCF, EDF, GDF, RATP, and, more picturesquely, the Banque de France, notarial clerks, the Comédie Française, the Opéra, assorted sailors, and, last but not least, members of parliament. Merely listing the various special regimes is enough to indicate what a hodge-podge the system is, and the variety of rules and regulations is bewildering indeed. Some workers are entitled to retire with full benefits at 50, others at 55, some after only 25 years of service, some after 30 (cf. the 40 years required under the Fillon Law), etc. The Fillon Law created a more uniform system for most private sector workers and civil servants, but the special regimes remain, largely because the explosive reaction when Juppé tried to reform them in 1995 has deterred subsequent governments from meddling with the mess. But Sarkozy believes that the public is ready to accept reforms here in the name of "equality." We shall see.

One other economic note for today: Jean Peyrelevade's remedy for le mal français in yesterday's Le Monde notes, in echo of OECD chief economist J.-P. Cotis, that France's problem is not insufficiency of aggregate demand but weakness of aggregate supply and that what is needed is long-term structural reform, not fiscal shocks to prime the pump of demand. Long-term reform must involve more than "flexibilization" of the labor market, moreover. It requires changes in university education, the organization of research and development, the regulation of entrepreneurship, etc. Sarkozy's energetic, not to say frenetic, style is not well suited to deep, slow changes of this sort, yet these elements do figure at least in his rhetorical program. Persistence will be needed, however.