Le Pacte De Wishful Thinking?

Since I moved to France, I have heard much about la crise. Newspapers abound with articles and editorials on the topic, people mention it during lunch break and discuss its more or less nefarious impact on their lives. When I was in a store in October to set up my local cell phone, I chatted with the employee. Upon my mentioning that I live in fact in Montreal, the response was “Can you hide me in your luggage when you go back?” I have witnessed this kind of reaction more than once, usually followed by some serious swooning, oohing and aahing over the presumed glories of Canada.

The president, Mr Hollande, has taken on the challenge of la crise and vowed a return to economic growth. Many of his public appearances are dedicated to the question of how best to tackle the quest for la croissance. Various plans are proposed, the latest one – le pacte de responsabilité — involving deal-making with business leaders around the touchy issue of how much it costs to employ a worker.

The idea is that firms paying less for each employee will hire more people. Simple as it may seem, this idea is nonetheless a leap of faith. On its own, decreasing corporate employment costs may not suffice for reducing unemployment, as there are many other things that firms can do with money saved from lower employment costs. For instance, unions may negotiate higher salaries for existing employees, executives may angle for larger compensation, shareholders may want steeper dividends, etc.

This is especially a concern if there are other factors that influence unemployment and that would render firms reluctant to hire additional workers with the money saved from lower employment costs. For instance, laws that make it difficult to let employees go typically make employers think twice before recruiting. As long as these other factors remain as they are, changing corporate employment costs is unlikely to make a difference in hiring.

In other words, less unemployment is not a necessary outcome of the pacte de responsabilité. Yet this pacte makes it look like the government is being proactive in finding a way out of la crise. The question is whether the government is doing the right thing or engaging in wishful thinking.

Your thoughts?

Photograph adapted from Nicole Abalde

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