On French Employment Law and Incentives

The French are protesting Villepin’s CPE plan to reduce employment guarantees for first-time employees. This law would give employers the right to lay off young workers (under 26) within their first 2 years of work without cause. Protesters believe this special regulation will result in young employees being treated as second-class citizens in the workforce, at the mercy of employers who can fire them willy-nilly.

One can’t help but be frustrated, again, by the ever-looming threat of the “general strike” brought about by the unions, who represent less than 20% of the French workforce but control most of the public service strikes. But let’s leave that aside for now, because, frankly, it’s too depressing.

I’ve long been baffled by how often the French public, one of the best-educated of any country, ignores basic economic principles, in particular the way incentives work. In France, firing an employee is quite difficult, even for cause. As a result, employers think very carefully before hiring. They take weeks or months to consider their options, even for entry-level positions. Why would such employers take the risk of hiring an inexperienced worker when they will likely be stuck with him as soon as the trial period (3 months) is over?

This law could provide that incentive. In every other European country, similar laws have shown dramatic success in reducing youth unemployment, which, by the way, stands at over 20% in France today.

But there’s something even more troubling to me about this lack of understanding of incentives. Somehow, the protesters believe that, without the law, employers would be firing and hiring for the fun of it, on a whim. They believe current law is the only thing that stands between them and the pink slip.

What a crock. Employers are (mostly) motivated by what makes financial sense to them. Once an employee has been trained and is doing reasonably good work, an employer is not going to fire them just for fun. In fact, the CPE stands to be fantastically useful to young employees, who are eager to learn and who can quickly become useful (and, since they’re young, relatively inexpensive) employees. The law would get them in the door, and their youth would make them clearly valuable enough to keep around (those who are qualified, at least.)

What the protesters are effectively saying is that they don’t even trust employers to make reasonable business decisions. And that’s just crazy.