Saturday, December 7, 2013

Unemployment up in France: Have to change the policy equation

Yet again, dismal news. French unemployment is up to 10.5% or 3.2 million people. This is the official statistics of people who are officially looking for a job.

It does not count people who have given up looking for jobs. It does not count people who are taking some traning course to improve themselves to increase their chances of finding a job. Total unemployment if we include all this may be twice as much, but who is counting?

Youth unemployment has risen to 25%. This includes people less than 25 years old. Evidently, these people do not have work experience and no one wants to employ them. There is a paradox: if no one employs them, then how will they get any experience?

Lack of growth, but stagnation. So unemployment should also be stagnant. But its increasing. An obvious explanation is that productivity has increased too. So, some people are working harder to retain their jobs, thus exacerbating the problems of those who would like to find a job.

A second explanation is that employers are continuing to increase investments in new technology and therefore increasing the capital intensivity of their firms. Evidently, the low interest rates may lead to this. The increase in capital intensivity means less labour is required. So, unemployment increases.

A third explanation is that French population has increased in precisely the segment of 20-25 year olds (this would suggest a lot of human productivity occurred in the late eighties). Or a lot of new young immigrants have entered in this age group recently. Perhaps from Europe with the opening out to new countries or from existing EU countries which are doing worse than France.

Evidently, we need to re-look at our relationship with technology and go back to notions of appropriate technology: technology which permits everyone to participate in society. Technological innovation should benefit the middle classes: not throw people out of the middle class into poverty.

Evidently, we need to look at interest rates and their impact not only on growth which should boost employment but also on investments and the kind of unemployment it can create.

Finally, we need to understand that beggar-thy-neighbour policies may lead to beggars coming into your country. The cost of creating walls to keep them out or hiring planes to deport them may be more than making appropriate economic and political chocies of redistribution and competitiveness.

Arvind Ashta

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