Monday, May 01, 2006

French productivity

During the latest conservative revolt on the streets of Paris, I was puzzled by one statistic. Among all the ones that signalled Big Trouble (Public spending and debt, youth unemployment), there was this: that French productivity was 29% above British and well above American. As an economics illiterate, I didn't understand this, and have just got round to finding out why.

Why is unemployment so high in France? There are a number of reasons, mostly related to rigidities in the labour market. Non-wage costs are very high, making people expensive to hire. Firing people is difficult and costly. This has made firms over the years more and more reluctant to take people on, preferring instead to hire more machines. This is where the higher productivity of French workers compared with their British counterparts comes from. The French have 80% more capital employed for each worker than the British do. So in many ways high French productivity is the flipside of high unemployment.
From The Guardian [my emphasis].

That 'hire more machines' reminded me of the explanation for the take-off of the US in the late 19th century. Without the skilled industrial workforce already 100 years old in Britain, the Americans too began developing superior mechanisation, which in the end resulted in higher productivity. This, too, is what happened in catch-up economies, such as those in South-East Asia.

The big difference in France, however, is that their capital investment has been motivated, not by the market, but by legislation. I'm not so free-market as to leave it at that, as if legislating in itself was the problem. The many beauties of France are testament to intelligent and effective legislation over a long period. However, laws that inhibit development in an atmosphere that distrusts capitalism and seeks security above all will not match the achievements of the past or give people hope for the future. In the meantime, Britain benefits from the excellent mathematicians and economists that legit over here because they can't make a home at home.


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