A problem of supply side reform

France has an unemployment rate of 10.5%, far higher than other EU countries of similar standing (but not as high as the basket cases of Spain, Portugal, Italy and Greece). That France's unemployment has been consistently higher than the UK's and Germany's really should concern the French.

The charts below show the French and UK unemployment rates. They show that UK unemployment has been consistently lower than Frances and that the UK has recovered from the Global Financial Crisis while France has not. Yet these two countries are neighbours, with broadly similar populations and similar industrial/service based economies.

One explanation offered for this is France's inflexible labour market. The maximum working week is set at 35 hours, there are strict laws about when people can work, generous minimum paid holiday (30 days a year compared to Germany's 20) and employment protection which makes it very difficult for firms to let workers go.

The French government wish to relax labour laws so that while those in work might be a little worse off there will be more jobs overall. 

This is a supply-side policy and copies the process begun in their neighbour, the UK, as early as 1981. This type of supply-side policy is called deregulation. The hope is that the reforms will give firms greater flexibility, so they become more responsive to customers and profitable, and encourage them to take on more employees because there is less risk they become 'stuck' with staff they don't need.

This is being strongly opposed by French Trade Unions who are engaging in nationwide strikes.

The article below explains the policy changes and also suggests that this is a battle between those currently in work and those who would like to be, but can't get jobs in the current climate.

The data certainly suggests that there is something stopping the French labour market from working efficiently and that this will cost France economic growth and give the French generally a lower standard of living.

The BBC article is here

This article is more directly applicable to IB students, but VCE students also need to understand the nature of Supply-side policies and their effects and also the difficulties that can be encountered in implementing them. There is no doubt that creating a more flexible labour market is one aim of supply-side policy and it will result in lower wage rate, but higher employment in the short-run, while allowing higher long-run growth.