Saturday, May 23, 2009

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.


rupiawan said...

I really believe that the policies adopted by the french government is the answer to the citizens. Problems have pro and contra that is common in the world of politics

bert said...

Forgive me, but I think Quiggin is arguing the opposite. In the US, firms are quicker to get rid of staff as the economy tanks, but hiring picks up quicker in an upturn. In the more protected labour market of the EU, payroll is stickier, both on the way down and on the way up. Variance (Quiggin's word) or volatility (your word) are lower in the EU.

Whatever. That doesn't affect your insight into the hidden dangers of the great moderation, which is well worth exploring. Sounds like you may end up arguing in favour of creative destruction, Schumpeter-style. Although I imagine you'll want to retain a certain amount of smoothing under the heading of social protection.