Download Labor market policies

Labor market policies
Labor market policies:
historical and comparative
perspectives
2
Philippe Askenazy (Paris School of Economics)
www.jourdan.ens.fr/~askenazy/laborpolicy.htm
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1950’s and 60’s
After WWII
US: GI come back … while women work
Labor market policies
Massive investments on tertiary education
Europe: reconstruction.
E.g. French GDP per capita = 40% US GDP
 Focus on secondary school and/or vocational
training
 Agricultural modernization…
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Growing imbalances
US: A productivity slowdown since 1965
US: An surge of inflation (>4%) since 1965 (why ?)
Global: floating currency regime in 1973
Labor market policies
UK: 10% inflation in 1971
Europe : some tensions on the labor market (why ?)
 Improving the matching “technology”: e.g. creation
of the ANPE in 1967
 pre-retirement. E.g. “Garantie de ressourcelicenciement” in 1972
Reduction of working time
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Economic knowledge on the labor market in
1974: Keynesians versus monetarists
Labor market policies
PHILLIPS, A.W. 1958. “The Relationship between Unemployment and
the Rate of Change of Money Wage Rates in the United Kingdom, 18611957.” Economica 25 (November): 283-99.
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Economic knowledge on the labor market in
1974: Keynesians versus monetarists
Labor market policies
PHELPS, EDMUND. 1967. “Phillips Curves, Expectations of Inflation,
and Optimal Unemployment over Time.” Economica 34 (August): 25481.
FRIEDMAN, MILTON. 1968. “The Role of Monetary Policy.” American
Economic Review 68 (March): 1-17.
Friedman quotes Abraham Lincoln’s assertion: “you
can fool all of the people some of the time, you can
fool some of the people all of the time, but you can’t
fool all of the people all of the time”
Phillips = you can fool all of the people all of the time
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Labor market policies
Economic knowledge on the labor market in
1974: Keynesians versus monetarists
=> No room for monetary policy
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1975: the NAIRU = a synthesis
MODIGLIANI, FRANCO, AND LUCAS PAPADEMOS. 1975. “Targets for
Monetary Policy in the Coming Year.” Brookings Papers on
Economic Activity, no. 1:141-63.
Labor market policies
WS-PS
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Labor market policies
1975: the NAIRU
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A macro-economic shock
First Oil shock. The Arab Light reached in January
1974 9$ from 2.3$ in October.
Labor market policies
 Inflation
But in most countries confidence in the growth
potential:
In January and still in June 1974, most of national
administrations AND the international institutions
expected steady growth for France, Italy, Germany...
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Chirac: Stop and Go
1974: France a new conservative power
Labor market policies
A young President: Giscard d’Estaing (1974-1981)
A young Prime Minister: Jacques Chirac (1974-76)
High inflation, high expected growth
 increase of the interest rate, of taxes on firms and
households
 late 1974: a dramatic drop of manufacturing
production (-12% ~ US drop)
But interpreted as just cyclical!
 Expensive policy in 1975. Public deficit -2.7%
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1974-76 Chirac: a defensive labor policy…
Two ideas
Labor market policies
Slowing the firing process
Supporting the revenue of the workforce
Administrative control of job separations
Short-time working
+ Dramatic reduction of immigration flows
“Allocation spéciale d’attente”
Huge increases of the minimum wage +14% in 2
years
High inflation but growth recovery in 1976 +5%
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… also in the UK, Germany, etc
Labor market policies
Budget deficits in most OECD countries
UK : Regeneration of British Industry Act: massive
nationalization of heavy industries => slow the
unemployment rise
Germany: support to the apprenticeship system
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Labor market policies
And unemployment rise. “Euro zone”
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Labor market policies
US
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1976-1979 UK: IMF intervention
Labour government (James Callaghan)
“Social contract” with Unions
Labor market policies
+ IMF intervention
 Decline of the inflation
 1978: “ Winter of discontent”
 Thatcher
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1976-1981 Barre: dramatic political errors
Labor market policies
The “best French economist”: Prime Minister
and Minister of Finance
Macro priorities: public deficits and monetary
stability
A micro labor policy: manual jobs
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1976-1981 Barre: macro policy
Wages moderation
Balanced public budget in France
Very low public debt in % of GDP…
70
Labor market policies
60
50
40
30
20
10
0
France
Canada
Allemagne
Japon
Etats-Unis
UK
Italie
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1976-1981 Barre: macro policy
Achieved through rises of taxes and social
contributions on labor in % of GDP…
18,00%
16,00%
15,00%
14,00%
13,00%
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80
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79
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78
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77
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76
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75
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74
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73
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72
12,00%
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71
Labor market policies
17,00%
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1976-1981 Barre: a costly labor market policy
Preserve manual jobs:
Labor market policies
Subsidies to “old” “male” industries (iron, steel,
shipyard…) ~ UK policy
Release manual jobs:
Attempt to reverse immigration flows
Pre-retirement: “Garantie de ressource”
Reduction of maximal working time
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1976-1981 Barre: a costly labor market policy
Stigmatization of Youths: inadaptability, refuse
manual jobs, etc
Labor market policies
No education effort but
Specific labor policy: the plans for youths
internships, subsidies
Inefficient and job insecurity. Why ?
1.5 millions unemploymed in 1981 (0.65 youths) +
two digits inflation
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Labor market policies
1976-1981 Barre: a costly labor market policy
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1979: US = a new Paradigm
Second Oil shock
FED President: Paul Volcker
Labor market policies
Sacrifice ratio versus Rules and discretion
Kydland, Finn E., and Edward C. Prescott. “Rules Rather
than Discretion: The Inconsistency of Optimal Plans”, Journal
of Political Economy (June 1977), pp. 473—91.
Lucas, Jr., Robert E. “Econometric Policy Evaluation: A
Critique,” Carnegie-Rochester Conference Series on Public
Policy (vol. 1, 1975), pp. 19—46.
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