Hobson's Choice

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Work Week in France

May 22, 2004

Knowledge Problem forwards this article in the Chicago Sun Times on the alleged failure of the 35-hour work week in France. He, of course, got the link from Instapundit. I thought it was a bit odd that the Chicago Sun-Times would be cited as a source on such a major event in France; I was also startled that no word was mentioned in the article about the fact that this would have been a major division between the Socialists (who lost power in elections a few months ago) and Gaullists (who now govern the country). The 35-hour week was a very popular measure in France; in point of fact, the ruling party is merely blaming its fiscal woes on the previous administration. That's hardly surprising to this elderly Yank. So I thought I would seek some further details…perhaps a source with some professional expertise on the matter.

One such site was IDS Employment Europe, an NGO based in the UK that researches employment conditions for HR departments. Let me repeat: IDS researches labor market conditions for management. As such, it would tend to favor the interests of employers (who read it) rather than social planners of the left. But they are also specialists with a long track record not only of employing French citizens in France, but of competing with French firms on quality and efficiency. As such, they may prefer to dismiss the French as a woolly-headed leftist rabble, but they have this minor hurdle that the French are extremely competitive—whereas the Americans aren't. So, constrained by reality, the IDS takes a rather more cautious position:

IDS Employment Europe (Nov '03): The centre-right Raffarin administration recently received formal notification that it was in breach of the eurozone stability and growth pact (SGP). Budget Minister Alain Lambert has claimed that the statutory 35-hour week is a key factor in France’s current economic straits. Prime Minister Raffarin has called for the legislation to be ‘renegotiated’ - in fact a process already set in train by the loi Fillon earlier this year - and has commissioned a wide-ranging study of its effect over the past four years.

In other words, France has a fiscal problem and PM Raffarin is hoping to save a few tens of millions of euros associated with the administration of it—not, as the story in the Chicago Sun Times suggested, because firms were crushed by the costs. A lot of these costs were compensation paid by the government to businesses in France for complying with the new law. After altering the law, I would assume the Gaullists could find occasion to pay out some more for the costs of adjusting to a new labor market. After all, those businesses form a powerful lobby in France, just as they do anywhere on earth.

It is exaggerated to suggest that the shortened working week is the principal cause for France’s inability, for three years running, to meet the budget deficit limit of 3% of GDP that is required by the SGP. To lay the blame for France’s problems squarely at the feet of the ‘Aubry’ laws is especially tendentious in the midst of a Europe-wide economic slowdown. While the 35-hour week is undoubtedly a factor in the equation, particularly in view of the social charge deductions offered to ease its introduction, it seems likely that the Government’s current budgetary difficulties are attributable to a broader range of factors: weak financial markets, poor economic growth and the strength of the euro against the dollar.

The linked article's author is no enthusiast of the idea of inflexibly regulated labor markets. …For many blue-collar workers, the 35-hour week has had some fairly undesirable effects: putting a stricter limit on overtime, and thus to any chance of supplementing basic wages (though it should be remembered that the 35-hour bar is not a ceiling on weekly working hours, simply the threshold after which overtime must be paid); introducing more unsociable hours and weekend working as a quid pro quo for a shorter working week; and entailing a compression of tasks previously undertaken over a longer working week.These are certainly reasonable objections; and it has to be pointed out that the European labor market generally has tended to respond to higher labor costs by replacing workers with machinery; the result is that, while the EU has lower per capita output than the USA, the marginal productivity of labor is higher. This is bad news for the future of Europe's social democratic climate; in a sense, labor there is in a more precarious position than in the USA, because employers are more reluctant to hire. Social equality is maintained by redistributive measures, which can be withdrawn by a change in the political climate. On the other hand, it's also true that the 35-hour week is part of a range of changes to the labor market targets at the new demands of a new labor force. Old socialist ideas appropriate to a labor force of blue-collar workers are out of place in 21st century France, where those overall-clad factory workers of yore are a vanishing minority.

Your humble correpondent is actually neutral on the matter of 35-hour work weeks. I have mixed views on the matter, really. In some cases I can see how it would backfire against the very social objectives of the framers; for example, it could indeed lead to accelerated outsourcing of jobs in some businesses. Another problem is that not all jobs are alike; some are so grueling that public safety and humanity would militate in favor of a shorter work week than average. In some cases, where it's a socially-mandated job, like health care and sanitation, the loss of safety and quality caused by overworked staff aren't going to be discounted in the market. In general, however, sweeping regulations aren't very effective because they cover parts of the system which aren't "broke." Most European countries already lead the world in mandated vacation time, high minimum wages, and so on.

My gripe with the Chicago Sun-Times article is that it relies on the "even the French think" rhetorical strategy, when of course France is not single-minded and has many of the same diverging lobbies that the USA has. Firms want fewer regulations on their behavior (unless those regulations weaken the strength of their competitors) and labor unions favor stronger regulations protecting their jobs and their wages. PM Raffarin and President Chirac are going to side with business on most issues; that's no surprise, and ought not to be. A lot of the social welfare legislation and trade policies of the EU member states have attracted domestic criticism; that doesn't mean they've failed, certainly not in comparison with the execrable idiocracy we're laboring under here in the USA. By all means, let's learn from failures of the Europeans; but let's at least learn to identify what those failures are.

ADDITIONAL RESOURCES: This Brookings Institute Report (c.2001) is also quite critical of the 35-hour workweek. At the time, it had been accompanied by a dramatic decline in unemployment, which has since rebounded to a level lower than that of 1997 (now about 10%; then, 12.4%). Most researchers have insisted that both the fall in unemployment, and its recent return to perennial highs, reflects the general state of economic growth. In another post I want to explain some of the issues related to Europe's generally high level of unemployment.

Measured in terms of workforce flexibility, the success of the 35 hour work week has been perhaps more real than is yet apparent. In order to implement the shorter work week, what the French call the réduction de temps de travail (RTT), all French firms with more than 20 employees have had to renegotiate their labor contracts. In exchange for the RTT, workers have generally been willing to accept a more flexible allocation of their work time, along with some wage restraint. This has created new opportunities for companies to adapt to disruptive demand cycles. Samsonite workers, for example, have agreed to work 42 hours per week in the summer, when the demand for baggage is high, in exchange for a shorter 32 hours-per-week schedule in the winter. [...] This kind of flexibility is possible because the loi Aubry requires only that weekly work time average to 35 hours across the year. This so-called annualisation can reduce the amount of overtime a company must pay, while also reducing layoffs in the off season.

But as most readers could reasonably expect, this regulation has fallen harder on small employers:

The big losers, and the ones most likely take to the streets in protest over the RTT, are those sectors of the economy that cannot increase productivity through flexible work times. In some of these sectors, like restaurants and trucking, employees have always worked long and difficult hours. For them, the 35 hour work week can only drive up labor costs, without much possibility offsetting the additional wages through greater worker productivity. The law will also face strong opposition from small businesses of all kinds. These small employers typically have fewer options for using their workforce flexibly.

I personally remain convinced that any social scheme based on redistribution of income is a very poorly conceived one that tends to leave workers more vulnerable, not less; and while no alternative is known, I think policymakers tender of labor's political strength absolutely need to keep their eyes open for them.

Comments on this Post:
I am curious why you think that redistribution of incomes is poorly conceived economic policy. It is actually, as far as I know, something of a mystery as to what exactly determines wage rates. The factors of production argument, according to which each factor receives returns in proportion to its marginal contribution to the total product, is something of a conceptual mythology; in particular, determining what a unit of capital is, so as to assess its appropriate return, proves to be a bedevilling detail. The old Ricardan assumption was that, ceteris paribus, the distribution of the surplus product between wages and profits was inversely proportional, so that higher wages meant lower profits and vice versa. Obviously, real wages can not rise fictitiously above the actually achieved rate of productivity and profits can not fall below the level required to replace capital stocks and, arguably, to improve them, though cost-reducing productivity improvements are, in principle, self-financing. But the distribution of the distributable surplus product is always latently a political issue, regardless of whether the distribution occurs within or after the production process. And there are good arguments for redistribution, not just to assist the least advantaged, but to prevent the concentration of decision-making power in the hands of the fortuitously advantaged and allow for both a better distribution of demand inputs, with a higher level of aggregate demand, and for a broader distribution of opportunities for innovation.

As for the problem of unemployment in the EU welfare states, the usual culprit is the structuring of taxes on employment, so as to drive up the marginal cost of increased employment. (Coming from U.S. economists, this is laced with hypocrisy, since the tie of health insurance to employment in the U.S.A. has something of the same effect.) But altering such structurations once in place can prove fiendishly difficult, and not just for political reasons; they enter into the expectations and patterns of economic calculations, as well. On the other hand, EU demographics are aging much sooner and more drastically that in the U.S.A. This has large effects on the level and composition of demand and on future expectations with respect to it.

Posted by: john c. halasz at May 24, 2004 05:52 AM

It is actually, as far as I know, something of a mystery as to what exactly determines wage rates.

According the the Sraffa analysis of the Cambridge Capital Controversy, a general equilibrium analysis does not yield a determinant result for factor incomes. In other words, using the principles of marginal analysis (or neo-classical economics) there is no single equilibrium for wages and rents.

I would venture to say that wages are determined by production functions, labor and goods markets, and politics--in no particular order.

the tie of health insurance to employment in the U.S.A. has something of the same effect, [viz., to drive up the marginal cost of employment].

One powerful determinant of marginal costs would have to be the way in which health care and pensions are largely absorbed in European countries; the absence of this in the USA partly explains why the US steel industry is so hopelessly untenable.

I am curious why you think that redistribution of incomes is poorly conceived economic policy.

The reason is that I believe the better strategy is to strengthen the position of workers. It's sort of like the concept of God having to constantly intervene in creation miraculously in order to achieve acceptable outcomes. I come from a religious background where associate pastors or sunday school teachers were constantly implying that God must be micro-managing everything, like causing a little league team to win the pennant to show little Bobby that witnessing one's faith is good. It's not terribly elegant.

Imagine if some really liberal social democratic party won a huge majority in Congress as well as the presidency. In addition to that, imagine this wondrously liberal party also won control of most state legislatures and most gubernatorial elections. This party is then able to impeach recalcitrant federal jurists or amend the constitution in a matter of weeks.

Now, let us suppose this imaginary party creates an elaborate scheme of income redistribution which changes the Gini Coefficient of the USA from 0.39 to 0.2. The problem is, that the program has vastly increased the scope of state intrusion, which could lead to severe erosions of political liberty. The other problem is that the system may do nothing to redress the cause of income distribution being so concentrated in the first place. The system could ruin incentives, or cause people to train for nonexistent jobs, or develop arbitrary notions of what is productive and what isn't.

Eventually the imaginary party would be taxing and redistributing so much that a backlash could follow. The system could be dismantled amid really ugly political acrimony. And I think the system would cost something quite valuable: the vestigal notion that there is some feedback between virtuous conduct and good results in life.

Another objection is that such an imaginary party is unlikely to exist, let alone acquire such political power.

In contrast, efforts to increase the marginal revenue product of labor would lead to something much more sustainable, either politically or economically.

Posted by: James R MacLean at May 24, 2004 07:11 AM