ALL countries that are in the euro need flexible labour markets, because they cannot devalue their currencies if they become uncompetitive. Instead they must pursue the stonier path of “internal devaluation” by lowering labour costs. How does France compare with fellow euro members and other advanced economies?
In countries where labour markets are flexible, workers find jobs more easily because, if need be, employers can shed staff. By contrast, countries with inflexible labour markets can find their workforce split between insiders on permanent contracts and outsiders on fixed-term ones. The insulation of insiders allows them to defend their wages and working hours in hard times, pushing any necessary adjustments on to temporary workers. And high taxes on employment inevitably tend to reduce its level: France’s huge “tax wedge”, arising from extraordinarily high employer social-security contributions, is a strong disincentive to new hiring.
An OECD gauge of job protection finds France above the average at the start of 2013. That position is unlikely to have changed much since then, because subsequent reforms have...
from The Economist: Europe http://ift.tt/1DmQAzK
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