June 20, 2007


Allez-y, Sarkozy (GEORGES de MENIL, June 20, 2007, NY Sun)

It is now clear that the French government will follow Mr. Sarkozy's presidential program to the letter. The program's flagship measure is the wholesale exemption of overtime hours from social security and income taxes. Many economists and some foreign observers are puzzled by the emphasis Mr. Sarkozy has placed on this expensive provision. Indeed, it might appear disproportionate to give higher priority to encouraging overtime than to stimulating employment.

But France is not a normal country. For 10 years, it has struggled with the costs of a mandatory 35-hour week — a ceiling that is now so embedded in the legislation regulating working hours that simple abrogation would lead to chaos. The alternative, a targeted tax holiday, constitutes a welcome break with the culture of "time off," and an encouragement to those who, as Mr. Sarkozy's campaign slogan put it, want to "work more in order to earn more."

The program's other measures are a series of tax cuts for the middle class, entrepreneurs, and the wealthy, which, though expensive, constitute a similarly welcome break with France's tradition of punitive taxation.

However, none of these measures goes to the heart of France's structural problems. The Gordian knot paralyzing initiative and blocking employment consists in the maze of regulations that stifle the labor market. French companies live under the constant threat of a surprise visit from the labor inspector to determine compliance with a thick book of arcane measures. Worse yet, the knowledge that some law or regulation covers every aspect of employment poisons the workplace and discourages attempts to resolve problems pragmatically. When both parties to a dispute know that they are likely to end in a labor court, neither has an incentive to compromise.

The law's most onerous provisions are those regulating the terms of employment contracts, for they condemn employers who decide to close a plant to a marathon of legal proceedings of uncertain duration and unpredictable outcome. This not only hampers restructuring, but also makes firms hesitant to hire and inhibits innovation.

Posted by Orrin Judd at June 20, 2007 7:42 AM
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