« Previous Post | Next Post »

Guest Analyst

An Economist View of the French Election

By Mark Weisbrot

The elections in France demonstrate the power of faulty economic analysis, and more generalized problems with arithmetic, to shape ideas and possibly the future of not only a nation, but a continent.

The United States has faced similar problems with its debate over Social Security, in which the majority of Americans were convinced – based on verbal and accounting trickery – that the program is facing serious financial problems when the baby boom generation retires. (It isn't).

In France, Nicolas Sarkozy, the right-wing candidate, has taken the lead after Sunday's election with 31.2 percent of the vote, against Ségolène Royal, the left-of-center candidate of France's Socialist party, who garnered 25.9 percent. They face a runoff election against each other on May 6.

The general theme that has propelled Sarkozy into the lead is that the French economy is somehow "stuck" and needs to be reformed to be more like ours. It is also widely believed that France needs to be made more "competitive" in the global economy, since competition is tougher now in a more globalized world.

New York Times columnist Thomas Friedman has been the most popular proponent of the idea that French workers must lower their living standards because of the global economy. "All of the forces of globalization [are] eating away at Europe's welfare states," he writes . . . "French voters are trying to preserve a 35-hour work week in a world where Indian engineers are ready to work a 35-hour day." For Friedman and most of the pundits, this is impossible.

It is important to understand that there is no economic logic to the argument that the citizens of any rich country need to reduce their living standards or government programs because of economic progress in developing countries. Once a developed country has reached a certain level of productivity, there is no economic reason for its residents to take a pay or benefit cut, or work more hours, because other countries are catching up to their level. That productivity, which is based on the country's collective knowledge, skills, capital stock, and organization of the economy, is still there, and in fact it increases every year. To the extent that international competition is being used by special interests to push down the living standards of French or German or U.S. workers – and it is – it just means that the rules for international commerce are being written by the wrong people. It is a problem of limited democracy and lack of representation for the majority, not a problem that is inherent to economic progress.

Another mistake that is commonly made in this debate is to compare France's income or GDP per person to the U.S., by which France lags: $30,693 for France versus $43,144 for the U.S. (these are adjusted for purchasing power parity). But this is not a fair comparison, because the French do not work nearly as many hours as we do in the United States. Economists do not say that one person is worse off than another if she has less income simply due to working fewer hours. A better indicator of economic welfare in such a comparison is therefore productivity, which is as high or higher in France as it is in the United States.

Now for some arithmetic regarding France's notoriously high unemployment rate among young people, which shaped politics there and influenced world opinion during the youth riots in 2005. The standard measure of unemployment puts the unemployed in the numerator, and unemployed plus employed in the denominator (u/u+e). By this measure, French males age 15-24 have an unemployment rate of 20.8 percent, as compared to 11.8 percent for the US. But this difference is mainly because in France, there are proportionately many more young males who are not in the labor force – because more are in school, and because young people in France do not work part time while they are in school, as much as they do in the United States. Those who are not in the labor force are not counted in either the numerator or the denominator of the unemployment rate.

A better comparison then is to look at the number of unemployed divided by the population of those in the age group 15-24. By this measure, the U.S. comes in at 8.3 percent and France at 8.6 percent. Both countries have a serious unemployment problem among youth, and in both countries it is highly concentrated among racial/ethnic minorities. But the problem is not much worse in France than it is in the United States.

Sarkozy proposes making it easier for employers to fire workers, cutting taxes (including inheritance taxes), pushing back against the 35 hour work week, and other measures that will favor upper-income groups and owners of corporations. These measures will certainly redistribute income upward, as we have been doing in the United States over the last 30 years. But once again, there is little or no economic evidence that these measures will increase employment or economic growth.

Royal proposes a series of measures to boost economy-wide demand – including raising the minimum wage, unemployment benefits, and state-subsidized employment. These make some economic sense, since they at least have a chance – mostly by boosting aggregate demand and spending power of consumers – to create more employment.

If France makes a historic shift to the right in this election, it will be largely due to economic misinformation.

Mark Weisbrot is co-director of the Center for Economic and Policy Research, in Washington, D.C. (www.cepr.net).

Email This Post | Del.icio.us | Digg | Facebook

Please e-mail PostGlobal if you'd like to receive an email notification when PostGlobal sends out a new question.

Comments (6)

cheapest generic price viagra:

Useful site. Thanks:-)
http://www.nuc.edu.ng/forum/forum_posts.asp?TID=2589 cheapest generic price viagra

Marsellaise:

I am an American not a Frenchman but I have admired the French for standing up to the Bush and Blair administrations over Iraq. There is a great deal of pressure on France to adopt the Anglo-American free market remedies for a more dynamic economy and abandon their humane social model. This is one of the few articles that breaks away from this trend and I am glad that it is written by an economist who is widely reported and known for his insights into popular journalistic but misinformed economic thinking. The so-called successful British economy is a chimera in my opinion and this will become more evident in the future. Britain's formerly great educational system is under great pressure from anemic state funding which increasingly fails its students and future generations. And it isn't just education as its public health system is also under great funding pressures.

Fleur de Lys:

Muddy: "What happens after you figure in all taxes, and the fact US workers have to pay for medical insurance, college loans etc, I am not sure."

Muddy, you should figure it out, if you can, or have Mark Weisbrot do it, perhaps...

Some time ago, Radio Canada had it done for an average income family with two children (in Québec vs in France). Conclusion: while the Québec family earned more money (gross revenue), the French family was far better off, at the end of the year, considering the redistribution of wealth, in France, through their family policies (health, education, all allowances for children, income tax, indirect taxation, etc.)...

There is possibly much food for thought in such an exercise.

Muddy:

If unemployment is a measure of pain, wouldn't the right measure be a measure of the precentage of a population in pain?

Muddy:

At least until the recent upturn, the number of people in the USA that had given up finding work was really huge compared to recent decades. Its was several percent, and thus our unemployment figures are low too. Whether this trend of having unemployment figures 2-6% low continues in the USA I don't know.
However, any figure that counts people in school by choice is wrong, and for the age group in question it would be a major factor. However, is it true that the USA has fewer kids in college than France? I thought the USA was really high on the charts for this one educational stat.
Of course the reason so many in the USA go to at least some college is partly because most industrialized highschools turn out students at levels equalivalent to US students with 1-2 years of college.

On another point, I ran the numbers and if you assume that the average US worker works 45 hours a week, and has 2.5 weeks of vacation, and 2 weeks of holidays, and the average French worker has 5 weeks of vacation, and 2 weeks of holidays off, then the US worker makes slightly more on a hourly basic.
What happens after you figure in all taxes, and the fact US workers have to pay for medical insurance, college loans etc, I am not sure.

bman:

I am having a hard time with your unemployment calculations.
You correctly describe the standard formula for unemployment u/u+e. That is the number of people that try to find work but cannot. That is a useful number.
Many question the ability to distinguish between those that are trying to work and those who choose not to work. The best example is a college graduate who decides to pursue a masters degree after failing for find a job. "Giving up" removes you from the labor force, but it is still a bad thing. To adjust for this factor, people often look at the percentage of the poputation (p) that is working (e), e/p, or the percentage of the population that is not working (p-e)/p. These are useful numbers, because they control for a legitimate statistical flaw.
You propose that we measure the number of people that tried but could not find work by the entire population, which includes: (employed) + (those trying unsuccessfully to work) + (those who dropped out) + (those who chose not to work). You remove those not trying to find work from the numerator but not from the denominator. I fail to see what this gets us. What statistical flaw are you eliminating?
I would classify that number as misinformation.

PostGlobal is an interactive conversation on global issues moderated by Newsweek International Editor Fareed Zakaria and David Ignatius of The Washington Post. It is produced jointly by Newsweek and washingtonpost.com, as is On Faith, a conversation on religion. Please send us your comments, questions and suggestions.