French students are rioting to protest a system that will give them easier access to the job market. The unemployment rate among French youth is the highest in Europe, 23 percent. In the suburbs troubled by riots over the holidays, the unemployment rates among young people border on 50 percent. I have trouble seeing why these kids are rioting.
Prime Minister Dominique de Villepin has championed a program where there is a special labor contract for young inexperienced employees. The employer can fire the employee at will within the first two years of employment, thus minimizing the risk of hiring an employee without a proven record. They have two years to prove their worth and get some experience on the record, which will give them a benefit when they apply for the next job. Of course, this idea is earth shattering in a country so inundated with union power that the economy is slowly grinding towards a standstill.
The students are rioting because they want the same rights as employers with a proven record of accomplishment. They do not see that the proposed program actually gives them an advantage over more experienced workers. Because recent graduates have no work experience, they can underbid the more experienced workers on wage requirements. The youth labor contract lowers the employers risk exposure of betting on the new kid on the block. De Villepin is providing two powerful incentives to hire young people.
If there was any rhyme and reason to the rioting, the people taking to the streets to riot should be established workers defending their advantage in the labor market.
I can’t help but wonder how the idea of employment in Europe was turned on its head. It seems like the current paradigm is that there is a right to an income, a right to a job, regardless of whether the individual is contributing or not. Let’s recap the basic idea of markets.
The labor market is a market where the exchange of labor for wages is supposed to bring both the employee and the employer more value than if they did not do the exchange in the first place. The employee gets money to exchange for other necessities of life. The employer has enough labor to produce the products she makes money on selling. Both parties benefit from this exchange.
Should one party stop benefiting, let’s say the employee no longer receives money for his labor, he has the right to stop exchanging his labor with the employer. The contract has been broken. The employers right to stop exchanging money for labor she doesn't benefit from has been limited in the current system. The cost of firing someone that does not contribute exceeds the cost of training wasted on the employee who doesn't perform.
When tenure is added as a requirement for exchanges in the labor market, the people who gain are the people who freeload. The freeloader is not only depriving the employer of the value of his work, which is the equivalent of fraud. It is theft of wages because the employer is not given the value of labor in return. The freeloader is also depriving other workers, who want to provide for their families by honest exchange of labor for wages.
Let me give you a personal example of what the French prime minister is trying to achieve.
A few years ago, I made the move from Norway to the U.S. The idea that I could be fired with two weeks worth of wages was a bit scary. Not that I had been fired from a job, but the idea that I had employment at will was a change. If I showed up for work, I had a job. If I did not show up without a good reason, I did not have a job.
This was a month after 9/11 when the U.S. economy was in recession; I went from a computer engineer job in Norway to a part time cashier job at a retail store in Kansas City. I left behind a job with benefits, retirement plan, and a salary for hourly minimum wages.
In a situation where people where losing their jobs, Target Corporation took a chance on this immigrant girl who had a weird Latin-named degree from a foreign country, and who did not know the different coin and note denominations of U.S. currency. If I had moved from U.S. to Norway, I would most likely have been unemployed much longer before I found a job. Two jobs and 12 months later, MeridianIQ in Overland Park, Kans. offered me a salaried job with benefits. I would not have been offered that job, if I had not already proven my abilities to employers that hired cheap labor with high-risk exposure.
The U.S. labor market is more dynamic, and more open to employees with less experience and lower value than any labor market in Europe. Where a Norwegian retiree is limited to her meager savings and the monthly check from the governments retirement fund, a U.S. retiree can work a few months to save up enough money to visit grandkids on the other side of the continent.
Where a Norwegian graduate without valuable experience will receive unemployment because no employer can afford the risk, a U.S. graduate can use entry-level jobs with high turnover. The U.S. job has a high turnover because the good employees get promoted into salaried jobs quicker.
Prime Minister De Villepin is trying to introduce dynamism in a stagnant labor market, by giving young employees a competitive advantage. French students are throwing it back in his face, how dare he give them an opportunity to increase their living standard!
March 20, 2006