the French riots: an employment risk premium

Topics: Labor
06 Dec 2005

From: Ervan Darnell

[ Sorry this has become a bit stale, I was hoping to improve on it some but that's not likely now. ]

The French riots are blamed in part on the unemployment rate, especially the disparate unemployment rate. The youth unemployment rate is 23% and the Arab youth rate much higher (though the French don't keep separate stats on that). "Some estimates top 50%." [1].

'They owe us jobs' sounds ridiculous, but follows naturally in an environment where the government is presumed to dispense all benefits. It doesn't speak particularly well either of the theory that a high level of welfare lowers crime. 'It's racism' sounds equally ridiculous.

The economic analysis is more useful here: economies with high government employment are inflexible. Since government employment usually doesn't actually serve a demand (in the economic sense), and there is no income to justify a position, bureaucracy wraps rules around it to preserve it anyway. In turn, a protected position generates sloth. It's a feedback cycle that makes new job creation difficult.

Second, high unemployment follows from high employment regulation. If the French want to lower unemployment, they have to stop outlawing work (or indirectly doing so). Sharpening the point a little bit, it's worth asking why the Arab unemployment rate is so much higher. Granted they probably have weaker skills (having worse schools in their neighborhood and anti-education religious influences), but this is the low-talent entry-level labor market anyway. The difficulty of firing someone seems the obvious culprit. Maybe the numbers are like this: the average (white) French youth is worth $10/hour and 1% of them are trouble. The average Arab youth is worth $9/hour and 10% of them are trouble. That is, most are decent, but the employer cannot initially discriminate between the bad apples and good ones. If they are obligated to pay the same rate, there is already trouble because no one wants the $9 labor. But even worse, when it's nearly impossible to fire someone, the
average value of the Arab youth drops dramatically. No one wants to take a chance if they cannot correct a mistake later.


Ervan Darnell

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