Targeting Europe's 'burdensome' worker protections
In U.S. media coverage of the endless Eurozone economic crisis, most debate is framed around the question of austerity. In one camp are policymakers and pundits who see Europe’s problems as caused by profligate government spending, and demand cuts to social programs, and sometimes tax increases, to reduce public debt. On the other side—slightly less audible in the media—are economists who say austerity is counterproductive, a cure that’s killing the patient by dampening growth, and failing even to reduce the debt.
But there is one point on which “both sides,” at least as depicted by journalists, largely agree: that Europe’s economies are in dire need of “structural reform,” a euphemism that invariably means deregulating their labor markets. And for years (Extra!, 9–10/97, 9–10/05, 5–6/06)—but especially during this recent crisis—this topic has obsessed U.S. reporters and pundits.
The sheer unanimity of the media’s hectoring on the issue is impressive. The New York Times (9/25/12) complains that “countries like Spain and Italy…have often dragged their feet on removing sclerotic labor rules.” The Associated Press (11/20/12) explains that “many economists say that the greatest threat to France’s economy is its stringent labor rules, which make firing difficult and expensive and thus deter hiring.” According to the Economist (11/17/12), “burdensome labor-market regulation and the difficulty and cost of making workers redundant” mean that “big and small companies alike have been reluctant to create new jobs.” If “sclerotic,” “stringent,” and “burdensome” don’t make the picture clear enough, the Times adds grace notes about Italy’s “inflexible labor rules” (6/12/12) and France’s “rigorous job protections” (7/13/12).
The vivid adjectives betray the barely suppressed passion journalists seem to feel about this ostensibly technocratic issue. “The French seem to prefer protecting incumbents in work to getting the unemployed and the young into jobs, or to see no connection between the two,” sputtered Reuters’ Paul Taylor (9/18/12). “Indeed, France sometimes seems to exist in a parallel universe when it comes to economics.”
But it’s journalists who seem to be living in a parallel universe, since much of what they report on the issue is consistently tendentious or wrong. The specific type of regulation they’re taking aim at is what’s technically known as “employment protection legislation”—rules that restrict how easily firms can fire workers. For example, in France, the law requires that a worker on a regular labor contract be given one to two months’ notice before a layoff and two weeks’ severance for every year of service with the company. The employer must fire a worker for “real and serious” causes—such as incompetence or non-performance—or for economic reasons, and a worker laid off for economic reasons must be given priority if the firm rehires for the same job within a year.
If there’s one thing the media seem to be convinced of—or at least seem to want to convince the public of—it’s that rules like these kill jobs and are therefore to blame for high European unemployment rates. The typical habit is to claim, usually casually and in passing, that “economists say” this is so. But economists actually admit that despite their strenuous efforts, they can’t substantiate the notion that employment protection laws reduce total employment.
In fact, it’s not even clear why such rules should do so in theory: Even if you accept that they deter hiring, they do so precisely by deterring firing, so there’s no theoretical reason why the net result should be either positive or negative for the total number of jobs.
The fons et origo of the media’s air of certainty about the policies’ harmfulness on this score was probably the highly publicized “Jobs Study” published in May 1994 by the Organization for Economic Cooperation and Development (OECD), a major institutional advocate of such deregulatory policies. The report, a center-piece of the group’s “Jobs Strategy” campaign, seemed to suggest a link, based on empirical observation, between high unemployment and what the media call “sclerotic labor rules,” and it was immediately absorbed into journalistic conventional wisdom.
But in June 2006, the OECD’s economists published a comprehensive update of the study, intended to “reassess the Jobs Strategy in light of new evidence.” The newer document reported something quite different: “In line with a number of previous studies, no significant impact of employ-ment protection legislation on aggregate unemployment is found.”
As the wording suggests, this finding represents the consensus of researchers on the subject. In fact, a 2010 book (Employment Protection Legislation, Per Skedinger) devoted to reviewing and synthesizing every existing study of employment protection legislation—more than one hundred in all—was published by a Swedish economist who is sharply critical of such policies. It could only conclude that “effects on aggregate employment, aggregate unemployment and wages seem to be ambiguous” (although it added that there were more studies showing negative than positive effects, in addition to a large number finding no effects at all).
A more sophisticated and nuanced case could be made against labor market regulations. Since the employment rules reduce the rates of both hiring and firing, they probably don’t dampen the overall employment level—but they certainly reduce the “reallocation” of workers between companies. If you assume that companies have an interest in laying off workers from jobs where they’re less productive and hiring them into jobs where they’re more productive, then you could conclude that more labor reallocation—following the elimination of these job protections—would lead to higher productivity. (A countervailing force would likely also be at work, though: The costlier it is to fire workers, the more it pays to invest in their training.)
But this benefit of “labor market flexibility” comes with a cost to workers. Job loss is costly both in aggregate economic terms—time spent in unemployment means zero productivity; long-term unemployment damages employability—and, more to the point, in individual human terms. Employers reap all the benefits of laying off workers they consider less productive; but without regulations, they pay none of those costs. By imposing some cost on job reallocation, the regulations can be seen as ensuring that employers lay off workers only when the expected productivity payoff meets some minimum threshold—ideally, the level that corresponds to the actual cost of job loss to workers and society.
Now, a critic could try to make the case that the cost imposed on employers by some particular country’s job regulations is too high—in other words, higher than the cost of job loss itself—and therefore causes a net reduction in productivity. But media outlets like the New York Times and the Economist don’t make so subtle a case. They see their job, apparently, as bludgeoning their readers into agreement on this topic using simple slogans, rather than informing them.
As the magazine’s ad copy says: “I used to think, now I just read the Economist.”
To get a sense of the media’s febrile state of mind on this issue, go back to a long profile that the New York Times Magazine (5/14/06) ran of French Socialist politician Ségolène Royal in 2006. Royal is a mediagenic figure who was then pre
paring to run for president, but Times Magazine correspondent James Traub was mostly interested in obsessing over what might appear to be the wonkish issue of labor-market reform. For him, the greatest problem facing French society was that “the French regard the protection of job security as a fundamental obligation of the state.”
Tersely establishing the necessary ideological assertions—high unemployment in France, he explained, “is usually ascribed to the reluctance of firms to hire new workers whom it will find prohibitively burdensome and expensive to lay off”—Traub recounted how the right-wing government then in power had recently sparked mass student protests when it had pushed a plan to make it easier to fire young workers. This plan was a “rather timid and piecemeal approach to labor-market reform,” Traub thought. Nevertheless, opposition was explosive and the government had been forced to back down.
Traub wanted to pin Royal down on the issue. He cited her criticism of the government’s handling of the proposal, and said he was surprised to see that “someone whose entire life constituted a triumph over adversity”—Royal had risen to success in Paris from a harsh provincial childhood—“would join the campaign to insure against précarité [job insecurity].” Royal countered by saying that when the burdens of insecurity were borne unequally in society, this posed a problem. (A “familiar refrain,” Traub sighed.)
The back-and-forth continued. Royal tried to shift the focus from her own life situation to her interviewer’s; not realizing Traub was technically a freelance journalist, she insinuated that his own job contract probably afforded him some kind of protection. Triumphantly, he revealed that she was wrong: his contract with the Times was only one year long, and he could be fired for any reason at the end of each term.
And then he drew the moral of the story: The problem with this French politician’s view of the world, he explained, was that “Royal apparently viewed précarité as a kind of socioeconomic stigma rather than the price you might choose to pay for freedom.” With this little paean to the freedom to be fired, Traub—the son of a Manhattan socialite and the chair of the board of Bloomingdale’s—offered a rare window into the media’s own little parallel universe.
Seth Ackerman is an editor of Jacobin and a former FAIR media analyst.