The youth of France are faced with unemployment rates that parallel
those of the general U.S. labor force during the Great Depression,
with about one out of five people aged 18 to 25 unable to find work.
In recent weeks they have taken to the streets in protest over a new
federal labor law. Hundreds of thousands have marched, slowed
traffic, and disrupted life around Paris. The irony is that the law
they are protesting would provide them greater opportunity to get a
job, start a family, buy a house, and accomplish all the things
sought by the middle class. One might reasonably ask why any group
would stage protests over legislation that would clearly benefit
them. The answer is that Frances youth do not generally understand
how a market economy works.
French labor laws make it very difficult to fire
people, which reduces the incentive to hire and increases the
incentive to substitute machines for people. While the unemployment
rate in the United States is less than 5 percent, in France it is
nearly 10 percent. The new law allows persons under the age of 26 to
be hired for a two-year trial period. During that period, employers
can terminate the contract without having to offer an explanation.
After the first month, employers have to give two weeks notice for
severance and after six months, the employer has to give a one-month
notice. After the two-year period, the standard prohibitions against
firing apply.
The new law, while requiring substantial notice to fire
a young person, does lower substantially the risk to the employer
from hiring someone under the age of 26. Employers do not have good
information on the skills and productivity of potential employees,
and thus are reluctant to hire someone whom they might get stuck
with for decades. This change in the cost of hiring the wrong person
will reduce unemployment among the 18 to 25 population the very
group that is leading the protest over the law.
The market process is based upon voluntary exchange. I
cannot force you to work for me, and you cannot force me to hire
you. The only way to get both of us to agree to work together is for
me to pay you what you could have received in the next best use of
your time. I also cannot pay you more than the value of what you add
to my production, or I will go out of business. If, after hiring
you, the company produces $100 per day more in sales to customers, I
cant pay you $120 per day. In that case I will lose $20 per day and
eventually go bankrupt.
The problem in France is that if I think you are going
to produce $120 per day and find out that you only produce $100 per
day, firing restrictions dictate that I might get stuck with you as
a worker for 40 years. Or I might have to pay a substantial sum in
order to fire you. Thus, I will be very careful about whom I hire.
This is especially true about hiring a young person with little
prior work experience, which is why the new legislation will be
effective in providing employment for French youth.
If you think employers are able to exploit workers,
forcing workers to accept whatever wage the employer wants to pay
and casting workers aside on a whim, then you would think that the
new law would be bad for you. Government should act as a
countervailing force to employers. French youth must have this
misguided belief that producers control the economy, when the
reality is that consumers control the economy.
The amount consumers are willing to pay for the added
product you produce determines how much your employer can pay you.
And it makes no sense for a producer to fire anyone who is producing
an amount that covers the cost of his salary, since the producer
would always profit from that worker. Imagine if you wanted to start
a used CD store but could never fire anyone. Wouldnt you be
reluctant to hire anyone, especially a young person with no work
experience? The new law gives employers the chance to try out
workers and the workers the chance to show employers how productive
they can be. It is too bad that the people who will benefit most
from the law are applying pressure against it.
Dr. Gary L. Wolfram is the George Munson Professor of political
economy at Hillsdale College in Hillsdale, Mich. He also serves as
an adviser to the Business & Media Institute.
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