Category: Labor Economics

Precariousness: In France it is Sought and it is Feared

Coombs and VanderHam on the April 3, 2006 extreme ski run, in which they both died.  Source of caption information, and of photo:  online version of the first NYT article cited below.

 

Some seem to seek risk:

(p. A1)  ”La Grave goes from tranquil to frightening and mad, and it’s so exhilarating to be in those moods,” Mrs. Coombs said in a telephone interview last week.  Her husband, she said, ”never found anything more perfect.”

Last month, Mr. Coombs slipped off a cliff and fell 490 feet to his death.  He was 48. He was trying to rescue Chad VanderHam, his 31-year-old protégé and skiing partner from the United States.  Mr. VanderHam had gone over the same cliff moments earlier.  He also died.

Their accident, during a recreational outing, has focused attention on extreme skiing and on this remote destination, high in the Alps about 50 miles east of Grenoble.

For the full story, see:

NATHANIEL VINTON.  "Skiing Beyond Safety’s Edge Once Too Often."  The New York Times (Wednesday, May 17, 2006):   A1 & C23.

 

Others seem to fear risk:

PARIS, April 8 – Standing amid the chaos of the protests here this week, Omar Sylla, 22, tried to explain why the French are so angry about what seems to many people like such a small thing: the French government’s attempt to loosen labor laws a bit by allowing employers the right to fire young workers without cause during a trial period on the job.

Even after President Jacques Chirac promised to shorten the period to one year from two, the protests continued, and French students and unions have vowed to keep demonstrating until the law is repealed.

”We need less precariousness, not more,” said Mr. Sylla, the son of immigrants from Ivory Coast, who still lives with his parents in a government-subsidized apartment in a working-class suburb of Paris.

Mr. Sylla said he had searched for years for a job before finding work about a month ago as a baggage handler at Charles de Gaulle International Airport.  Even then, he said, he only got the job because his sister works at the airport and pulled strings on his behalf.

For the full story, see:

CRAIG S. SMITH. "French Unrest Reflects Old Faith in Quasi-Socialist Ideals." The New York Times, Section 1  (Sunday, April 9, 2006):   8.

 

Economists have long puzzled at how the same person can both buy insurance and gamble in a casino.  The first seems an act of risk-aversion, and the second of risk-seeking.  (Milton Friedman, and others, have tried to explain the paradox.)

But I am puzzled by something else.  When risks are taken, why are they so often taken in arenas such as rioting in the streets, or extreme skiing, where they achieve no noble purpose?  Whatever risks one is going to take, why not take them in the arena of innovation and entrepreneurship, where the potential benefits to the innovator and to human progress, are huge?

 

R. Glenn Hubbard Coins a Phrase: “Nondestructive Creation”

 

In much of the press speculation right before Bush named the replacement for Alan Greenspan as head of the Fed, three names were usually mentioned as frontrunners:  Ben Bernanke, Martin Feldstein, and R. Glenn Hubbard.  Based on various speeches and writings, I had reason to believe that Feldstein and Hubbard understood and appreciated the importance of Schumpeter’s process of creative detruction.  So I hoped that Bush would pick either Feldstein or Hubbard.  Alas, I have found no evidence that Bernanke has ever mentioned creative destruction (but maybe I just haven’t dug hard enough). 

In the passage below, Hubbard suggests that much job creation, occurs through nondestructive creation, rather than through creative desruction.  An interesting claim, that may be true.  But I doubt it.  Some evidence would be nice.

 

Much of the current policy discussion of the ups and downs of the labor market harkens back to entrepreneurship as "creative destruction."  This conception has fueled policy anxiety over job loss and global competition.  But so much of productivity-enhancing entrepreneurship is really about "nondestructive creation," in which new products and ideas generate growth.

There are policy lessons, too, in the observation that it is not simply opportunity (e.g., IT) but the seizing of opportunity (e.g., new types of firms or business practices) that enhances productivity.  Competition can promote entrepreneurial innovation in a way that raises productivity growth:  Foreign competition has long been a source of productivity-enhancing innovation.  In the domestic economy, policy can enhance or limit competition by its stance toward new business formation and employment. The U.S. has enviably low regulatory costs of business formation, while, by contrast, entry restrictions limit business formation in a number of other competitor countries. Labor market policy matters, too:  Recent OECD research finds a strong negative correlation between a country’s technology growth-rate and the strength of its employment protection laws.

. . .

Over the past quarter-century, average U.S. labor productivity has risen by two-thirds.  This enormous increase in workers’ ability to produce has not come at the expense of jobs.  The 40 million new jobs created over the same period reveal the secret of an entrepreneurial economy:  Successfully seizing business opportunities can raise living standards and employment.  For this reason, entrepreneurship–the motor that drives the labor market–must be a focus of study in business education and policy making.

 

For the full commentary, see:

R. Glenn Hubbard.  "’Nondestructive Creation’."  The Wall Street Journal  (Wednesday, September 7, 2005):  A16.

 

P.S.  Mark Wohar alerted me to an amusing music video, satarizing Hubbard’s possible ambitions to become chair of the Fed.  I later saw the video receive publicity on CNBC’s Power Lunch program, where the video’s student-creators at the Columbia Business School were feted.  The video may be found at:  http://www0.gsb.columbia.edu/everybreath/

 

Becoming Rich by “playing the tuba on the day it rained gold”

MungerCharlie2.jpg Charlie Munger. Sourge of image: online version of the NYT article cited below.

 

CHARLES T. MUNGER, Warren E. Buffett’s partner and one of the smarter thinkers on the planet, had few kind words for money managers at the recent annual meeting of his company, Wesco Financial.  

"I regard the amount of brainpower going into money management as a national scandal," he said. He later recalled a story told when he was a child in Texas: "When some idiot would get rich, they’d say, ‘Well, old Charlie was out in the field playing the big brass tuba on the day it rained gold.’ A lot of people have become rich lately who were playing the tuba on the day it rained gold."

Lately, though, it has been raining lead on the tuba players.

 

For the full commentary, see:

JENNY ANDERSON. "Insider; Hey, You Have a Problem Paying Alpha Fees and Getting Beta Returns?" The New York Times (Fri., May 26, 2006): C7.

Seeing How Life Has Improved Since the Days of the Cowboys

cowboyPBS.jpg A cowboy on "Texas Ranch House."   Source of image:  the WSJ article cited below.

 

"Texas Ranch House" — circa 1867 — is the latest PBS experiment in transporting a group of people back to another era so we can watch them live and struggle the way our ancestors did.  (Part one of eight begins Monday, 8-9 p.m. ET, but check local listings.)  As with past series such as "Colonial House," everything — clothing, tools, food, housing and all-around deprivation — is authentic.  Once again, though, stuffing 21st-century mentalities into period costumes and situations is a tough fit. And once again, it’s the folks wearing the bodices that chafe the most.

The Western setting is fascinating for two reasons:  What seems familiar from movies and TV takes on fresh significance when there are real people — not pampered actors — trying to scratch out an existence on the frontier 24/7, with no plot to guide them.  There is also the fact, as one of the participants points out early on, that many of us exist today only because a forebear actually did make the real journey West and manage to survive there long enough to bear children.  What luck, we are reminded more than once during this series, that those ancestors were so different from contemporary Americans.

. . .

The trouble that threatens to sabotage the entire experiment develops in the widening gap between the cowboys and the Cooke family.  The first time one of the employees disses boss man Mr. Cooke, yelling "Don’t let your wife run your life," we react with disgust at the insult.  As one of the women in the household explains to the camera, all the cowboys "are sexist bastards."  Besides, instead of rising early to ride the range in search of mavericks for 10 hours, the cowboys — mostly young Americans plus one frisky British boarding-school boy playing the part of 19th-century remittance man — indulge in long naps during the 100-degree days and often wake up in the morning with hangovers after nights of hard drinking.

At some point, though, certain facts begin to sink in:  Mr. Cooke does have management shortcomings and Mrs. Cooke is far more involved in running the business side of the ranch than a frontier wife would have been.  The ladies, in general, don’t enjoy the roles or status that historical reality would dictate, and some act out in defiant, liberated ways.  A fatal flaw, if not the only one, for the success of the ranch enterprise.  In 1867, spending days making cornhusk dolls while the house filled with flies and vegetables rotted in the garden wasn’t an option for folks who wanted to stay alive.  And, like it or not, keeping the ranch hands happy, as obnoxious as they might be, was more important than maintaining marital bliss.

This being a made-for-television environment, no one perishes, but there are no happy endings here, either.  When one of the Cooke daughters says to the camera, "I feel lost and dazed and hurt," you feel genuinely sorry for her.  At the same time, it’s clearer than ever that emotional pampering, navel-gazing and gender warfare are modern luxuries.  Like it or not, if these had been features of daily life in the West 100 years ago, many of the people reading this would never have been born.

 

For the full review, see:

Nancy deWolf  Smith.  "TV REVIEW; The West That Never Was."  The Wall Street Journal  (Fri., April 28, 2006):   W10.

Teachers’ Unions Fight Innovation, Customization, and Variety

(p. A27) Washington – A Wisconsin court rejected a high-profile lawsuit by the state’s largest teachers’ union last month seeking to close a public charter school that offers all its courses online on the ground that it violated state law by depending on parents rather than on certified teachers to educate children. The case is part of a national trend that goes well beyond virtual schooling: teachers’ unions are turning to the courts to fight virtually any deviation from uniformity in public schools.

. . .

There is a universal American desire for customization and variety in goods and services, and education must respond to that demand, whether the unions like it or not.
. . .

This debate, like the ones over many other education issues, is fundamentally about who gets to have power. Yet the power the teachers’ unions now wield will be fleeting if public schools do not become more responsive to parents.
An industry cannot survive by rushing to court every time a new idea threatens even a small slice of its market share. Instead, maintaining, and even broadening, support for public schools means embracing more diversity in how we provide public education and who provides it.

For the full commentary, see:
Andrew J. Rotherham. “Virtual Schools, Real Innovation.” The New York Times (Friday, April 7, 2006): A27.
(Note: ellipses added.)

Labor Market Flexibility Increases Employment and Prosperity

“France is definitely behind,” says William Keylor, professor of International Relations and history at Boston University. “If France were to create a more-flexible labor market it would eventually increase productivity and prosperity, but the short-term transition would be difficult and people just aren’t thinking long term.”
There have been labor changes across continental Europe recently. Denmark’s measures to liberalize hiring and firing have helped the country cut its unemployment rate in half from about 10% in the early 1990s to under 5%. Spain, too, has introduced short-term employment contracts which have helped cut its unemployment rate by more than half from 20% a decade ago.
But elsewhere, attempts at change have met with staunch opposition, often resulting in watered-down measures. Italy passed changes to its labor laws in 2004, introducing an extension of temporary-work contracts that were introduced in 1997 and were credited with helping cut Italy’s overall unemployment rate to 7.1% from 12% when the contracts began. Yet many economists say Italy, which recorded zero growth last year, hasn’t gone far enough.
In Germany, where unemployment stands at 11%, a coalition government headed by conservative leader Angela Merkel has promised to reduce unemployment by introducing similar measures to those hotly debated in France. The government had to settle on compromise measures that can extend a current probation period for workers to 24 months, from the current six. But companies don’t have the right to terminate contracts within those two years without giving just cause. Other, more difficult, provisions, are still on hold.
The new measures that will be introduced in Parliament as early as today are targeted at “disadvantaged” youths, which refer to people between 18 and 25 who have left school without any qualifications and who are unemployed. The provisions include increasing financial incentives to employers to hire people under 26 who face the most difficulties.
It would apply to some 160,000 young people currently hired under government-subsidized job contracts, according to an interview with Employment Minister Jean-Louis Borloo in an interview with Le Monde newspaper. The cost to the government would be around €150 million ($180 million) in the second half of 2006, Mr. Borloo was quoted as saying.
But economists said the change of tack was a bad signal. “The real problem is that the results obtained by opponents of the new law…show that it is very difficult to introduce reforms in France,” Dominique Barbet, economist at BNP Paribas, wrote in a research note. “This will give opponents of reform confidence for future actions.”

For the full story, see:
ALESSANDRA GALLONI. “Bowing to Protesters, Chirac Abandons Youth-Labor Law; Reversal Highlights Europe’s Difficulties With Painful Reforms.” The Wall Street Journal (Tues., April 11, 2006): A3 & A10.
(Note: the title and version of the article quoted here are from the online version. The title and content of the version in the printed paper was a little different in a couple of places.)

Wage Security Inversely Related to GDP Per Capita



Source of graph: Siems, Thomas F. “Beyond the Outsourcing Angst: Making America More Productive.” Economic Letter 1, no. 2 (2006): 1-8.
Schumpeter’s theory of creative destruction implies that more flexible labor markets will result in greater productivity per worker. The above recently published evidence, supports the implication.

A Salute to Villepin is Still in Order

VillepinSalute.jpg Source of image: http://www.lesoir.be/rubriques/monde/page_5715_419028.shtml

PARIS, April 4 — Waves of demonstrations, strikes and violence hit France again on Tuesday as Prime Minister Dominique de Villepin, weakened but defiant, refused to bend to the demand that the government scrap a disputed youth labor law.
It was the fifth nationwide protest since February against a modest initiative that was aimed at encouraging the hiring of young people but that has provoked an improvised, open-ended campaign against the French government itself.
. . .
But, in a sure sign that this was not a country paralyzed, the Paris Métro and bus system ran on a normal schedule. Mail and many newspapers were delivered. Only 18 percent of railroad workers were on strike, compared with 28 percent a week ago. Fifteen percent of domestic flights were canceled, half the percentage of last week. The Education Ministry reported that 23 percent of its workers were absent, compared with 36 percent last week.
In the National Assembly, Mr. de Villepin faced savage criticism from the opposition.
“Mr. Prime Minister, who is governing France today?” asked Jean-Marc Ayrault, the leader of the Socialist party bloc in the Assembly. At another point he said: “You govern no more. You hold the appearance of power, but you no longer exercise it.”
Mr. Ayrault said France was mired in a “crisis of regime with two prime ministers,” apparently referring to the active role that Interior Minister Nicolas Sarkozy has played in trying to open a dialogue with the unions.
In reply, Mr. de Villepin vowed, “The government will not give in.” Despite predictions that the law is doomed, he insisted: “What we want is a victory against unemployment. This is a victory for France.”

For the full story, see:
ELAINE SCIOLINO and CRAIG S. SMITH. “French Premier Refuses to Bow to Protests by Angry Youths.” The New York Times (Weds., April 5, 2006): A8.

Villepin Attacked for Trying to Make French Economy More Open to Creative Destruction

VillepinProtesters.jpg
French students in Lyon protest Villepin with a sign that says “Villepin branche ton sonotone” which I think translates into “Villepin, plug in your hearing aide.’ Source of image: http://www.larazon.es/noticias/noti_int18071.htm
There is much to dislike about French Prime Minister Dominique de Villepin; for example his performance on Iraq, and his restrictions on foreign companies buying French companies. But, so far, he has acted heroically in trying to add flexibility to French labor laws. French students have marched and rioted, French unions will not speak to him, and French politicians have ridiculed him. Now he is under attack, even within his own party.

“. . . one day we are alone on the front line,” he said in defending his youth jobs plan last month. “In this solitude we must find the force to advance.”
But Mr. de Villepin’s problem of late is that his enemies have been multiplying, even in his own camp.
On Wednesday, Interior Minister Nicolas Sarkozy, who, like Mr. de Villepin, wants to run for president next year, for the first time distanced himself from his boss over the new labor law, which would allow employers to fire workers under the age of 26 without cause during their first two years on the job.

For the full story, see:
ELAINE SCIOLINO. “Labor Protests Put French Premier in a Bind.” The New York Times (Thurs., March 23, 2006): A10.
VillepinSalute.jpg A salute to Villepin may be in order. Source of image: http://www.lesoir.be/rubriques/monde/page_5715_419028.shtml