Friday, March 17, 2006

Dear French Students: Take an Economics Course

Some of you may be following the latest series of protests happening in France. The French government is seeking to change its employment laws to allow students getting their first job to be offered a contract with more limited employment protections. Students affected by this change, who already face significant unemployment rates of 23 percent and double that in some depressed urban areas, are up in arms about the apparently loss of job security that this change presents. An AP story can be found here:

My advice to these students: have a nice glass of California wine or an ice cold Coca-Cola to relax, enjoy some good Wisconsin cheese, and stop burning other people’s cars. (How is it that random destruction of other people’s stuff becomes an acceptable form of protest?) Once you have composed yourself, enroll in an economics course, or read one of the excellent books out there by people like Thomas Sowell or Milton Friedman.

You will soon discover that your government is trying to help you. Employers are more willing to give you a chance to prove yourself when they are not hampered by a long-term obligation to keep you on in the event you don’t work out. Being risk averse, and considering the significant costs of keeping on a person who turns out to be a slug, the employers must either pay very low wages or hire only those applicants that are virtually certain to perform. Given that minimum wage laws prevent the low-wage alternative, they choose the latter.

Restrictive employment laws end up hurting the segment of the labor market which is likely to have the lowest skill levels and prospects for employability. (Thus, it makes sense that the troubled urban areas, which are probably full of rather troubled young people, would have dramatically higher unemployment rates.) These young people might have a chance to prove themselves and show that they can indeed perform useful services if someone only gives them a chance to try. However, that chance does not come at all if substantial future cost burdens are attached.

In the academic realm in which I am employed, tenure creates these potential future burdens on employers. Though some of us may find tenure as a necessary protection from reprisals for our academic opinions (probably a greater risk for conservatives than for those of other political stripes), for others it simply protects them from the market consequences of modest effort. This explains, in significant part, why academics do not get paid as much as their counterparts in private industry. Unfortunately, the depressing effects of these burdens not only affect entry, but also compensation growth within the affected employee group.

Some might still find this security preferable, and willingly enjoy the trade-off in compensation. I'm all for choice in such matters. But we should think carefully about imposing this as a requirement in the legal structure, where choice is not permitted, particularly when the people harmed by it are likely to be those with the weakest prospects.

I doubt many French student protestors will read my blog today. For the rest of us, we should think about these principles the next time we contemplate imposing significant new burdens on employers. Those who think they are doing good by imposing these burdens should consider the effect on the weakest workers, who may not get the chance to try to prove themselves.



Anonymous said...

One wonders how the students would feel if the tables were turned and they too were required to purchase services/goods under long term contracts, irrespective of the seller's quality? Come to think of it, that is similar to the position we parents are in with respect to public education - notwithstanding that one can always complain to the principal or the School Board.

Anonymous said...

I'm not entirely comfortable with this seemingly Darwinian approach to employment. Unless I mis-understand the gist of the original blog post (entirely possible), you seem to be saying that the "weakest workers" are those incapable of performing adequately over the long term. As a former gov't. employee, I am extremely familiar with the "process" one must go through to get rid of "dead wood." However, an employer must also acknowledge the fact that they cannot have a workforce composed entirely of "A-Team" personnel. It's just not possible.

Type A personalities, typically the most driven of the species, don't always play nice with other Type A's. They need B's and C's to boss around. In a world where the buzzword is "team", you can't have a team where the players are constantly changing if you hope to accomplish anything substantial.

I would submit to you that the "weakest workers" are going to be the ones actually "doing" the work. Why not make it "palatable" for them to do so?

My $0.02 --Durst

Ed Morse said...

Two comments:
Anonymous, you have an interesting point. But at least the parent does have some control through feedback mechanisms like the school board. We also get a long-term relationship with politicians we elect (hire) (esp. senators), but that may be preferable since it insulates the official from political pressures to some degree. But that is a different case.

Durst, what I meant by "weakest" was those with the least developed skill set. Those without experience, but having strong educational track records, may present a basis for belief that the skill set needed is likely to develop over time. For others, that may not be the case. The problem here is that they don't even get a chance to prove themselves. You are right that there are varieties of skills and personality types, and all can be valuable parts of an employment team. But you can't find your place in the world if you can't get hired in the first place. With 23 percent unemployment among young people, apparently there are a lot of young people with this problem in France.

If you recall the Conehead movie, (where Dan Akroyd merely claimed he was from France), he could overcome his odd looks and lack of pedigree by starting out in a low level job. If I remember the plot correctly, I think he later showed he could really perform quite well and he proved successful on Earth. An odd example, perhaps, but I think it gives some reference point for what I am saying (and a humorous one to boot!).

Best regards.