Market Theory Becomes Market Fact.

Bradylama

Bradylama

So Old I'm Losing Radiation Signs
The failure of the 35 hour work week in some European countries has proven the "lump of labor" fallacy.

http://economist.com/displaystory.cfm?story_id=2921785

Europe wakes up to the folly of excessive labour-market regulation


IT WAS a moment of triumph for France's Socialist Party. Four years ago, the government of Lionel Jospin, taking advantage of a spurt of French economic growth, brought in their long-promised 35-hour week. The idea was to reward France's highly productive workers by awarding them shorter hours, but with the same high pay. The Socialist government also promised that, because the measure would share out the available work, it would create more jobs, cutting France's persistently high unemployment. Thus could the European social model be made consistent with a new economic dynamism.

Today the triumph is tarnished. The French economy, like other big euro-area economies, has performed badly in the past few years, and unemployment has remained high. French businessmen, hopeful at first that the 35-hour week might help push through other productivity-enhancing changes, now complain that it has added extra rigidities and raised costs. The 35-hour week's main sponsor, Martine Aubry, has lost credibility even within the Socialist Party. In his Bastille day message this week, President Jacques Chirac put the emphasis on getting the economy growing again, not on protecting the social model. His finance minister, Nicolas Sarkozy, makes few bones about wanting to move away from the 35-hour week (see article).

France's ministries of finance and labour provide English-language information on the economy and the 35-hour week. The OECD publishes excerpts from its Employment Outlook 2004.

Symbolically significant as it became in its own terms, the 35-hour week was also part of a wider European approach to sclerotic labour markets that can now be seen to have comprehensively failed. In many countries besides France, the cure for high unemployment has been sought in the encouragement of shorter working hours. Another common response to growing insecurity about jobs has been to increase job protection and make it harder to fire people. And a widespread reaction to growing global competition that has lowered pay at the bottom end of the market has been to entrench high minimum wages.

As many pointed out at the time, these measures made little sense. The notion that there is a fixed amount of work to be shared out, so that shorter hours for all must mean more jobs, is widely derided by economists as the “lump of labour” fallacy. Making it harder to fire people serves mainly to discourage hiring them in the first place. And high minimum wages translate not into better-paid workers but into more people without jobs. These observations are no longer just matters of theory: the recent experience of France, Germany and other continental European countries shows that they apply in practice too. As the OECD's recent Employment Outlook noted, the empirical evidence points to a clear correlation between high levels of job protection and high levels of unemployment.

Belatedly, Europe's governments are realising this, and coming round to the need to free up their labour markets, not tie them down in even more red tape. Indeed, they have begun to grasp that excessive regulation of labour markets, far from being a sensible response to slower growth, is actually a significant cause of it. Deregulating labour markets need not mean sacrificing all the protections of Europe's social model: countries such as Denmark, Finland and the Netherlands have shown that generous welfare systems and a strong safety net can be preserved even while allowing market forces to play more freely in the demand and supply of labour.

That does not mean that trade unions and other vested interests will be happy. They are already fighting to keep job-protection measures, since these benefit those already in work at the expense of those looking for work. But workers themselves are now accepting the case for change. In France, a majority even say they would junk the 35-hour week if it enabled them to earn more. The drumbeat for reform in Europe grows ever louder. Wise governments will heed it.
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Not quite. It means that heavily regulating the labour market hurts more than it helps.

I mean, the idea of the whole thing is confusing to begin with. If the 35 hour work week forces a company to hire a 9th person where there was previously eight, it only makes them lose money. Essentially it spreads out the same amount of productivity to more people, while costing companies more in wages or salaries.
 
That's not socialism, Psychosniper, it was a plan brought into action by a social-democratic party, there's a huge difference. A 35-hour work week (which is a 36-hour one in the Netherlands, and failing here as well) is not some kind of base socialist principle. Tsch.

That said, the principle is interesting, but basically silly. More people should get a job, but then, companies pay more and can afford less people. Nice, huh?

However, I fail to see the relevance of bringing in a high minimum wage, there. It's not actually connected to the subject, and is simply used to berate European countries without actually having any reason to do so. Bah.

Not quite. It means that heavily regulating the labour market hurts more than it helps.
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No, that's not what it means either. What it means is that regulating the labour market in such a way may hurt. But we can't know whether the economic slump is due to the these working weeks (personally, I dislike them) or whether it's due to the general global economic slump. It appears to have failed, but we don't know whether it would've worked if the economy had not gone into that slump. It's too easy to just point out a cause when you see an effect.

This article, however, is very biased. It steps in with "35-hour work week failed" and continues with "regulating market is failure". The second does not follow logically and automatically from the first.
 
That’s why Siemens threatened to move one of their local German production line if the workers won’t agree to work additional 5 hour a week.
 
However, I fail to see the relevance of bringing in a high minimum wage, there. It's not actually connected to the subject, and is simply used to berate European countries without actually having any reason to do so. Bah.
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The subject was how regulation of the labour market is hurting European countries.

High minimum wages isn't intended to berate countries, its proven to force service and manufacturing companies to raise their prices. Basically it lowers the standard of living for everybody who isn't working on minimum wage and doesn't make life any more affordable for those working on minimum wage. Don't confuse beration with criticism.

I mean, the name of the publication is The Economist.
 
Bradylama said:
I mean, the idea of the whole thing is confusing to begin with. If the 35 hour work week forces a company to hire a 9th person where there was previously eight, it only makes them lose money.
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I can't speak for France but in the US people cost a lot more than their pay check. I worked for my brother who owned his own small business and I saw some things I never knew before. Let's say you get $1000 as a paycheck and you get taxed $250. Your take home is $750. But what a lot of people miss is that the company basically matches your federal and state taxes. So they end up paying $1250 bucks to have you for that pay period. This is excluding health insurance, 401ks, retirement or any other benefits. The costs add up.I would much rather have fewer employees and pay them more. so I can see why this idea flopped. As I am sure the Economist would point out. let the market work itself out.
 
The subject was how regulation of the labour market is hurting European countries.
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Yes, but all it does is actually make a connection with the 35-hour work week and then go on to "prove" that labour-market regulation in itself is bad. I think the economist is quite a good publication, but this is a really really bad article.

High minimum wages isn't intended to berate countries, its proven to force service and manufacturing companies to raise their prices. Basically it lowers the standard of living for everybody who isn't working on minimum wage and doesn't make life any more affordable for those working on minimum wage. Don't confuse beration with criticism.
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Yes, but you're forgetting one thing: they didn't say any of that. The subject was dragged in without any support or in fact explanation at all.
 
Buckle said:
I can't speak for France but in the US people cost a lot more than their pay check. I worked for my brother who owned his own small business and I saw some things I never knew before. Let's say you get $1000 as a paycheck and you get taxed $250. Your take home is $750. But what a lot of people miss is that the company basically matches your federal and state taxes. So they end up paying $1250 bucks to have you for that pay period. This is excluding health insurance, 401ks, retirement or any other benefits. The costs add up.I would much rather have fewer employees and pay them more. so I can see why this idea flopped. As I am sure the Economist would point out. let the market work itself out.
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Health insurance is the primary reason these days. Even with so-called cost-effective HMOs (which had to have been the worst thing to ever happen to health care) the costs of insuring employees kept rising out of proportion to other expenses. Therefore, it was more economical to work one employee and pay for overtime than hire a second to work regular time.
 
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