Funk Kirkegaard, J. (2014) “Why France Needs Political Reform“, Peterson Institute for International Economics, 29 October.
Despite recent unflattering jokes, France is not an economic basket case. Blessed with numerous competitive high value-added industries, France is also visited by more foreign tourists than any other country in the world. It has also performed far better than the euro area periphery and the islands off the coast of the Continent on the metrics that really matter—real GDP per capita—since the last cyclical peak in early 2008.
Figure 1 Real GDP per capita, Q1 2008 to latest available
Source: Eurostat
Figure 1 shows how French real GDP per capita, though stagnant since 2011 and not yet fully recovered to precrisis levels has nonetheless remained above Italy (Europe’s true large country disaster), Spain, the United Kingdom (for all of Chancellor George Osborne’s crowing), and the European average.
Yet France faces plenty of important economic issues that must be addressed. Figure 2 illustrates the toxic French combination of an excessive public sector and sclerotic labor markets.
Figure 2 Size of government and labor utilization, 2013
Source: Organization for Economic Cooperation and Development
At 57 percent of GDP, the French public sector is larger than anywhere, bar Scandinavia. Yet the French work less on average than any other advanced economy to finance their government (hours worked per capita is the broadest metric available for labor utilization in an economy and takes into consideration inactivity rates, retirement ages, work-sharing from part-time work, and average full-time hours worked). Remarkably, at just 605 hours worked annually per capita in 2013, the labor input of the average French citizen was lower than the 608 hours recorded in Spain—a country with more than 25 percent unemployment at that time!
France’s love of leisure is often cited as the reason for this behavior. Yet France has no more legislated and paid vacation and holidays than most other European countries—about 30 a year [pdf]—and the political system has not responded more than elsewhere in Europe to citizens’ demands for leisure. It is also sometimes heard that the French can afford to work less because of their productivity. True, French GDP per hours worked is high, but this assertion overlooks the fact that the figure is an average and many low-productivity workers are inactive in France. If the country managed to improve labor input and employ more young people, older workers, and lower skilled people, average recorded productivity would decline. Ultimately, labor utilization in France is poor because the French labor market is poorly regulated and biased in favor of prime aged “labor market insiders.” If this system is not changed, France cannot restore economic growth.
Relevant posts:
- Ali Abbas, S. M., Blattner, L., De Broeck, M., El-Ganainy, A. & Hu, M. (2014) “A 100-year perspective on sovereign debt composition in 13 advanced economies“, VoxEU Organisation, 27 October.
- Dixon, H. (2014) “A New Euro Crisis?“, Reuters Breaking Views, 20 October.
- Sapir, A., (2014) “France and Germany must both change economic strategy“, Bruegel Blog, 13 February.