Thursday, March 17, 2016

Rigidity Is in the Eye of the Beholder

As the fragrance of fumigènes once again fills the streets of Paris and lycéens grant themselves another day off from the task of preparing for the bac, Le Monde, mine de rien, publishes a nice graph showing that, according to the OECD, Germany's "rigidity index" is actually slightly higher than France's. In other words, the idea that revising the labor code to make it easier and cheaper for firms to shed workers is not likely to reduce France's unemployment rate (currently 10.4%) to Germany's (4.3%). But never mind that: France will gain a jump in the race to the bottom of the rigidity league tables, currently occupied by the United States and New Zealand.

1 comment:

Mitch Guthman said...

This is yet another pointless and incomprehensible economic policy that is completely unmoored from reality. France is continuing to suffer from what is essentially a crisis of demand.
If that's true, and virtually every economic thinker or institution outside of the austerity fever swamps agrees that it is, then every policy needs to be evaluated on whether it addresses the crisis of a lack of demand. How does a policy of allowing employers to more quickly make up their wage bill stimulate more spending?

Obviously it doesn't but, even worse, it seems likely to reduce the ability of workers and the middle class to spend generally by intensifying people's concerns about their futures economic prospects. Everyone except for the very rich will see that it's only a matter of time before the Hollande administration gets around to them and the natural response is to reduce spending and increase savings. Which is another hit to demand, which in turn creates another reduction to capital spending as businesses see no potential for growth and therefore no need to build new stuff like factories or brewery's or stores.

The perfect policy for a man like Hollande who believes that supply creates its own demand.