Facing
an unemployment rate of 10% in his state, with youth particularly hard-hit (23%
for those under the age of 25), Francois Hollande of the state of France
announced in August 2012 a new initiative for the legislature to pay most of
the salaries of tens of thousands of young people hired in 2013. Young
Europeans have been hard-hit by the
laborious labor laws that make it difficult for companies to let people go.
Some E.U. states, including France, have proposed modest tax breaks for
companies that hire people just entering the workforce, but no one is under the
impression that such proposals will redress the underlying structural problem.
Fundamentally,
there is no guarantee that a competitive market will come to an equilibrium at
full employment. Accordingly, government has a legitimate role in picking up
the slack, such that ideally any able-bodied adult who wants to work can have a
job. In the state of France, the plan being proposed by Hollande in August 2012
would have companies that hire a person between 16 and 25 for at least a year
pay as little as 25 percent of the person’s salary (for up to three years). In
this way, the state hoped to create 100,000 new jobs in 2013 and 50,000 in
2014.
While
managements would doubtless see this as a bargain, the question is whether
other jobs would be put at risk given the 25 percent of the salary being paid
by the companies. A clever manager might try to increase the proportion of the
employees for whom the company must pay only 25 percent. Increasing the proportion
would mean letting some non-subsidized employees go. The cost structure assumed
could be a basis of sustainable competitive advantage if competitors do not
also have such an arrangement. In other words, do government-subsidized jobs in
the private sector add much in the way of the total employment of a company
(and thus of the economy as a whole)?
One
might also consider the matter of France’s deficit. Under E.U. law, it cannot
exceed 3.5% of the state’s total economic output. Hollande’s strategy going
into office was to offset the additional spending with a tax increase on the
rich, yet even in anticipation of this some rich French were relocating to
Belgium, a state with lower income taxes on the rich. California, which at the
time also had an unemployment rate of just over 10 percent and a youth rate of
23 percent, also suffered from a budget deficit and a proposal by Brown to
increase taxes. Unlike France, however, California faced no federal law
limiting the deficit. In this respect, the E.U. was already a more consolidated
federal system than was the U.S.
In
short, the problem of individuals undercutting a policy for the whole is
evident. A company’s manager seeking to take undue advantage of subsidized
labor is like the rich person who seeks to avoid paying higher taxes by going
to another state. To be more effective, government policy needs to figure out
how to minimize such opportunism that is at the expense of the whole. Thomas
Jefferson and John Adams both assumed that a virtuous citizenry is required for
a republic to work. In the cases both of France and California, reaching full
employment and achieving fiscal balance in the government may well come down to
whether the respective citizenry does not try to exploit the requisite government
policies.
It
could even be said that a society or civil contract that is disvalued in the
face of widespread opportunism deserves to fail. Managers use “corporate citizenship” as
window-dressing, yet without any sense of obligation to anything beyond the
company. Doubtless there are rich people whose motivation to minimize even
taxes they can pay dwarfs any sense of staying put and riding out the storm
with everyone else (i.e., we are all in it together). If we are not all “in
it,” then there is no We, as in We the People.
Sylvie Corbet and Sarah DiLorenzo, “French Government Offers to Pay Most of Young Hires’ Salaries,” The Huffington Post, August 28, 2012. http://www.huffingtonpost.com/2012/08/29/french-salaries-young-hires_n_1839663.html?utm_hp_ref=business