Posted by on January 1, 2020 11:12 am
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Categories: Taxes

 

Why did France choose unemployment and debt?”


By Patrick Aulnas, courtesy of Contrepoints

 

For half a century, France has made an implicit choice: mass unemployment and public debt . The two elements are linked because the size of the state weighs heavily on the economy and harms its dynamism. Hyper-regulation and massive taxes hamper the functioning of businesses. This hurts their competitiveness  and they do not hire. As a result, the active population, including the unemployed, can no longer finance the welfare state and the state is in debt. How to explain this evolution ?

 

WORK, LEFT DEMAGOGY AND RIGHT DEMAGOGY

 

When the regulations governing indefinite employment contracts (CDI) was slightly relaxed in 2017 (through the enabling law of September 15, 2017, known as the Labor law), leftist parties cried “scandal.” As for the right-wing parties, they viewed this legislative development as a measure without real significance. These reactions were mainly political.

 

With the sociological base of the left comprised to a very large degree of employees, it is necessary from an electoral point of view to appear to defend them. For the right, whose electorate is more varied, it may seem wise not to displease anyone by pretending to think that none of this really matters.

 

This is just political comedy. The left deceives its voters by making them dream of a statist society protecting individuals by virtually excluding economic risk. This society does not exist and attempts to establish it have always resulted in dictatorship and totalitarianism.

 

The right pretends to believe that it is possible to return to the CDI labor law of the 1950s or 1960s. The employment contract at that time, like any open-ended contract (leases for example), include a unilateral termination clause for both parties. The employer could dismiss an employee very freely for economic reasons and the employee could resign.

 

Only formal requirements were provided (notice period in particular). The CDI was only used exceptionally for extra work or replacements.

 

It is not surprising that the left dreams of a fanciful future and the right of a bygone past. This corresponds to the sensitivities of their respective electorates.

THE POLITICAL WEIGHT OF EMPLOYEES

 

Why have we moved in just over half a century from freedom to hyper-regulation of work?

 

The immediate cause (excluding geopolitics: globalization) is the massive rise of wage-earning in the economy. According to INSEE, 91% of people who work today are salaried, against 64% in 1949.

 

As a result, the political weight of employees has increased considerably. The politicians therefore accepted their demands, relayed by the unions, which consisted mainly of guaranteeing jobs.

 

Through reform after reform, the CDI’s provisions allowing termination by the employer shriveled to almost nothing. Complex procedures and prohibitive costs have led employers to get around the problem by using fixed-term or temporary workers, or for very small companies, by simply not hiring.

LEGAL AND ECONOMIC NONSENSE

 

This development is legally and economically absurd, but it is an accomplished fact. The political world preferred stable employment to dynamic employment for the wrong reasons, mainly electoral.

 

As a private enterprise is a fragile structure, subject to the vagaries of the market, there is a flagrant contradiction between the institutionalization of jobs by law and the freedom to participate in the market. In a market economy, an employer must be able to constantly adapt to the market and therefore adjust the workforce to the needs of the undertaking.

 

But mentalities have evolved so much over the past half century that the preceding sentences are considered pure provocation by any employee in the 21st century. The evolution of the law and the dominant political discourse on this subject gradually induced a statist mindset.

 

For today’s employee, it is the State that must manage employment by strengthening the legal guarantees of employees. If it does not do so, it is failing in all its duties and its leaders should be replaced by more understanding politicians.

THE SHORT TERM FIRST

 

The electoral horizon is not a distant horizon. In fact it is abnormally close since the electoral mandates are limited to a few years. The politician must therefore quickly satisfy his electorate if he seeks re-election . While a long-term political choice would have been desirable in terms of labor relations, the short-term prevailed.

 

The legislator, that is to say the politicians, has constantly protected existing employment to the detriment of future employment. Due to the growing wages of developed economies, this choice was electoral – or rather demagogically – rational.

 

However after several decades of short-term political management, the situation is clear: mass unemployment , costly allowances , high contributions and public debt.

 

Politically, such a choice amounts to protecting constituents at the expense of their children. Today’s workers pay for the political choices of several successive decades, mainly in two ways.

 

First, the difficulty in finding a job leads to periods of unemployment. Then, the massive public debt, linked to the growing burden of benefits of all kinds, weighs on a reduced number of active employed people.

 

According to INSEE, in 2016, the working population in France was 29.6 million people, including 26.6 million in employment and 3 million unemployed within the meaning of the International Labor Office.

 

But if we want to add people who are underemployed, we must combine categories A, B and C of the ILO statistics. This adds up to nearly 6 million job seekers, representing more than 20% of the active population. This 20% impacts not only public expenditure (unemployment compensation, health, family) but also public revenue (contributions, taxes and the like).

 

Short-term electoral management has therefore consisted, for the past fifty years, in satisfying voters by totally neglecting the situation of future generations. Today’s workers have huge public debt and mass unemployment on their shoulders.

 

 


A graduate of public law, a former associate professor of economics and management, Patrick Aulnas is now a blogger and essayist.