Labor market flexibility and french unemployment

Abstract

Labor market regulation is often blamed for the poor French performance of the last 30 years. Introduce a greater flexibility into the labor market, the argument goes, and France will soar. Unemployment will decrease ; output will increase. The aim of this study is to challenge this position by pointing out the distribution and dynamic effects which are likely to come with this deregulation. For this purpose, we specified a theoretical model of a demand constrained economy to analyze the association between wages, output and employment and carry out an econometric study for France. The result shows a positive association between real wages and output in France and makes a strong case against the argument that making the labor market more flexible can enhance growth of output and employment. Paying in particular atten¬ tion to the international dimension of the state of employment in France, evidence shows even ifflexibilization of the labor market were indeed to stimulate domestic aggregate demand, this would not necessarily ensure a higher and sustainable rate of growth of output and employment.