Macron’s labor reforms for France get thumbs up from European economists

Michael Maiello | May 23, 2017

Sections Economics Public Policy

Collections IGM Poll

Emmanuel Macron, newly elected President of France, has promised to ease regulations about hiring and firing workers in France, as part of his bid to make France more competitive and business-friendly. He would, among other proposals, weaken protections that have long been in place and push France towards “at will” employment, meaning that an employer could dismiss an employee at any time, without cause.

French unions have mobilized to resist the reforms, but the reforms are largely cheered by the leading European economists who were polled by Chicago Booth’s Initiative on Global Markets.

IGM posed two questions to its European Experts panel. First, it asked whether reducing labor protections, allowing companies to negotiate labor terms with specific unions rather than by industry, and making training programs more effective would increase economic productivity. It also asked whether reducing unemployment protections would reduce France’s equilibrium unemployment rate.

In both cases, a majority of the experts polled concluded that the reforms would likely increase productivity and decrease unemployment over the long run, though many acknowledged that French workers could face short-term difficulties. Weighted by conviction, the panelists were strongly inclined to support Macron's reforms.

“This is a very odd question, given that French labor productivity is so high,” observes Kevin O'Rourke of Oxford. Far more productive than their reputation may suggest, French workers are the second most productive in the G7, just after workers in the United States and ahead of those in Germany, Italy, and the United Kingdom.

However, unemployment in France has been persistently high since the 2013 eurozone crisis, even though the rate recently fell from 10 percent to 9.6 percent and is now at its lowest point in four years.

Chicago Booth’s Lubos Pastor says that reforms that increase employment could actually decrease productivity. “If such reforms create jobs mostly for people with below-average productivity, aggregate productivity will go down.”

Franklin Allen, Imperial College London
“Giving flexibility should improve things in the long run. The short-run effects may be more problematic if there is a lot of dissent."
Response: Agree

Jan Pieter Krahnen, Goethe University Frankfurt
“The second policy option (decentralized labor negotiations) may backfire, boosting strike incentives and lowering productivity."
Response: Uncertain

Peter Neary, Oxford
“‘All else equal’ agreed. But it risks triggering further disillusionment with globalization. Accompanying macro stimulus would ease the pain.”
Response: Agree

Helene Rey, London Business School
“Flex-security (Scandinavian model) would raise productivity. Certainly not the same thing as decreasing unemployment protection.”
Response: Agree

Olivier Blanchard, Peterson Institute
“Such a reform changes the nature of unemployment (shorter duration, higher flows) for the better. Net effect on the rate is ambiguous.”
Response: Uncertain

Per Krusell, Stockholm University
“It may not do so immediately. One can do a reform with grandfathering though, leaving currently employed workers with protection."
Response: Agree