The election of Nicolas Sarkozy as President of the French Republic has been widely regarded as the signal of a shift in France’s policy towards Europe. In a campaign where European issues were conspicuous by their absence, Mr Sarkozy was by far the clearest of all the principal candidates regarding his ideas for the EU. A quick fix was needed to overcome the stalemate created by the French and Dutch rejection of the draft constitutional treaty. Turkey, as an Asian country, had no justification to join the EU: instead, a type of “privileged partnership” had to be established to anchor this country to the Union. Having settled these two thorny issues, Europe should then focus on topics that matter most to ordinary citizens, such as how to create growth and jobs.
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As a candidate, Sarkozy promised to reform labour markets. His first move concerns the infamous 35 hours workweek, not really a surprise. The shorter workweek had been introduced by the socialist government of Jospin with the explicit aim of sharing work to increase employment. It followed on earlier moves under President Mitterrand in the 1980s and under President Chirac in the 1990s. That the idea was mistaken may be obvious to (non-French) economists, but it remains controversial in France because substantial subsidies, introduced when the Jospin government realized that the measure could, well, actually reduce employment, make it difficult to identify its effects.
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The labour force in Britain has grown by 212 percent since 1851; over the same period, the number of jobs has grown by 212 percent. So - ignoring the business cycle - a market economy always provides more jobs, if there are more people «effectively» seeking work. The issue is how to increase the «effective» supply of labour. So let me focus mainly on the supply side of the labour market and, especially, on the problem of mobilising the unemployed in France. I will accordingly say a little about wage flexibility, which should be central to the demand side, and about skills.
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The 2007 budget should be a decently good vintage for the French economy, given the extraordinary electoral circumstances that will prevail in 2007: Presidential election in May, followed by general elections in June. Against this backdrop, one would have expected the incumbent government to flatter the electorate by injecting some growth boosters by means of budgetary stimulus, leaving to its successor the task to clean up the fiscal mess. My reading of the draft budget as it is now in the hands of the National Assembly is that it is a fair compromise between electoral contingencies and the imperious necessity to rationalize public spending, streamline the tax system, and cut the ballooning public debt. Actually, the public debt should decline already this year, as a percentage of GDP, for the first time since 2001.
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In his seasonal greetings to the press French president Jacques Chirac proposed to widen the tax base for employers' contributions to social security from wages to value added. The idea of cutting employers' payroll contributions to foster employment is not distinctively French. Instead the idea of financing it by widening the tax base from wages to value added certainly is: In general, governments tend to finance reductions in employers' social security contributions through the general tax system. This is the case of the German coalition government that plans to finance a reduction in employers' contributions to unemployment insurance from 6.5% to 4.5% through receipts from the general tax system.
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Having been asked to write an article about Segolene Royal, I started by checking about her on Google. The first heading that came up said 'Buy Segolene Royal on e Bay'. I don't suppose she really is for sale, but in a way the item seemed to me appropriate. E Bay is a prime example of the new economy, the advance of information technology and globalisation. These are changes sweeping though all Western societies, but ones to which France is finding it particularly hard to adapt.
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It is almost commonplace to say that France is one the OECD countries where employment protection laws are the stricter. Restrictions to both the recourse of temporary contracts and the possibility of layoffs for permanent contracts are the result of over 30 years of continuous regulation imposed by successive governments, either right of left wing. From that respect, the two new contracts (CNE and CPE) recently proposed by the government are genuine breakthroughs. By suspending employment protection laws they solve in a quite radical way the problem of a far too rigid doctrine on dismissal. However, by doing it only for the two years of the contracts, they only introduce a mild change in the actual flexibility of employment while they bear the risk to comfort the inefficient and unfair dualism of the labour market.
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