Labor market policies
Labor market policies:
historical and comparative
perspectives
3
Philippe Askenazy (Paris School of
Economics)
www.jourdan.ens.fr/~askenazy/laborpolicy.htm
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Outline
1980-1985
- US = new macroeconomic policy
Labor market policies
- UK = new “industrial” policy
- France: inefficient policies ?
1986 : new unemployment theories
- France: from stock market crash to growth recovery
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1981-83: dramatic unemployment rise despite
new policy
Labor market policies
1979: Thatcher
1981: Reagan
Unemployment rate (ILO/OECD)
1981
1983
US
France
Germany
Italy
Japan
Sweden
7.6
7.0
4.5
7.9
2.3
2.8
9.6
8.0
7.8
9.4
2.7
3.9
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Why ? 1979: US = a new macroeconomic
Paradigm
Second Oil shock
Labor market policies
FED President: Paul Volcker
Rules versus discretion
Kydland, Finn E., and Edward C. Prescott. “Rules Rather
than Discretion: The Inconsistency of Optimal Plans”, Journal
of Political Economy (June 1977), pp. 473—91.
Lucas, Jr., Robert E. “Econometric Policy Evaluation: A
Critique,” Carnegie-Rochester Conference Series on Public
Policy (vol. 1, 1975), pp. 19—46.
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Labor market policies
US: Volcker + Reagan
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UK ≠ US
Unemployment did not decline during the 1980’s
Why? Thatcher’s policy = a rapid transition from
manufacturing to financial activities
0,25
0,2
Financial services
manufacturing
0,15
0,1
20
07
20
05
20
03
20
01
19
99
19
97
19
95
19
93
19
91
19
89
19
87
19
85
19
83
19
81
0,05
19
79
Labor market policies
0,3
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UK
Components of the UK “industrial” policy:
-
Labor market policies
-
-
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France: 1981-1983, a leftist policy
Labor market policies
Mitterrand: President
Mauroy: Prime Minister
Socialists + communists
But a center-left government for economic affairs
Delors: Minister of Economics and Finance
Fabius: Ministry of Budget
Rocard: Ministry of Planning
Very optimistic expectations: why?
 A “new” macro-policy
 A “new” micro-policy
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France: 1981-1983 macro-policy
Labor market policies
Idea 1: control the banking system through
nationalization
Idea 2: economic outlook => boost consumption
Eg.
Minimal pensions +50%
 State benefits in real terms + 12%
 Minimum wage in real terms + 10%
 + 160,000 civil servants
Problem: again the expectations were too optimistic!
 huge trade imbalance
 huge deficit
 devaluation…
 unsustainable policy
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France: 1983-1986 “macro-policy”
Fabius Prime Minister in 1983
Labor market policies
Le “tournant de la rigueur”
 stabilization of public spending
 break of the indexation of wages on prices
 drop of inflation
 atone demand
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Labor market policies
Unemployment raised but inflation dropped .
“Euro zone”
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1981-1986 “micro-policy”: Sharing labor
Labor market policies
5 years to reach the 35-hour workweek ≠ Dutch
Wassenaar agreements
First (and last!) step in 1982: 39-hour + 5 weeks of
vacations
 ex-post evaluations (in the 2000’s!): no job creation
 hourly productivity gains
Retirement age: 60 down from 65
 no impact because already 60 in practice
BUT Pre-retirements 700,000 in 1984
+ Low-paid jobs in non-market activities ~ 500,000
 significantly reduced unemployment rate
 and smoothed the industrial policy
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Labor market policies
1981-1986 modernization of France? Industrial
policy and education
Nationalization of giant manufacturers eg. UsinorSacilor (steal)…
Followed by massive downsizing
 - 250,000 jobs in manufacturing
 profits recovery
Liberalization of financial and stock markets (too late ?)
=> Foreign stockholders + bank/insurance expansion
Free radios, private TV channel
=> Entertainment industry
Effort on secondary education including vocational
degree => In one decade: democratization with rapid
expansion of the share of youths with the Bac
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New unemployment theories:
Hysteresis and euro-sclerosis
Labor market policies
Blanchard O. L. Summers, 1986, “Hysteresis and the European
Unemployment Problem”, NBER Macroecnomics Annual, vol. 1.
Targeted policies on long-term unemployed
 design of labor policies to avoid long-run
consequences
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Micro labor economics 1981-1986
Birth of “modern” labor market economics
Lindbeck-Snower, Layard-Nickell: insiders/outsiders
Labor market policies
Shapiro-Stiglitz: efficiency wage/ shirkers
Pissarides: job flows, matching function
 new prescriptions for labor policies
-
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France 1986-1988, Chirac the liberal…
France in 1986 ~ UK in 1979
Labor market policies
Economic environment: the oil counter shock… and
the October, 20 1987 stock market crash
Idea 1: reducing the weight of the State and a society
of stockholders
 Income tax cuts including the “Impôt sur les
grandes fortunes”
 Privatization for about 2% of GDP
But stock market crash…
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France 1986-1988, Chirac the liberal…
Idea 2: plummeting the rigidities of labor market
 Favor part-time jobs, short-term contracts
Labor market policies
 temporary jobs
 France is currently the third market for temp
agencies among OECD ~ 2 to 3% of the workforce
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France: 1986-1988, Youth policy and territories
Labor market policies
1986: Social tax cuts for the employment of young
workers
So massive windfall effects that they were removed
in 1987… except for on-the-job education…
… extended to tertiary education
 substitution between age groups
+ expansion of social treatment of unemployment
 reduction of youth unemployment but stagnation of
unemployment rate
“la reconversion” (again ~ Thatcher policy)
i.e. support to zones hurt by de-industrialization
through improving workers’ mobility, and specific
social tax cuts
 poor efficiency
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Labor market policies
Low inflation but unemployment still high.
“Euro zone”
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France 1988-1990: Center-left
Mitterrand reelected
Rocard PM with a “gouvernement d’ouverture”
Labor market policies
Encouraging expectations… and realizations
International growth. Why ?
In France GDP growth ~ 4% yearly 1988-1990
Growth but very cautious policy: stabilization or
rationalization of current tools, freezing of privatization
One exception: the RMI “Revenu minimum d’insertion”
 poor efficiency for labor market. Why ?
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Minimum income support for family in some
European countries (PPP euros per month, 2007)
Labor market policies
Couple with
one child
Alone with
one child
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Labor market policies
“Euro zone”: 1987-1990 a new Phillips curve?
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1988-1990
Decline of short and long-term unemployment in
Europe
 End of stagflation: low persistent inflation rate
Labor market policies
 End of the hysteresis phenomenon?
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