What Accounts for the Today’s Difference in Unemployment Rates Between France and Us?

What accounts for the today’s difference in unemployment rates between France and US?

France has one of the highest unemployment rates out of the industrialized nations. It has been at around 10% for the last two decades. Many French workers will go through unemployment at some point in their career, and it is an especially high probability for the low skilled workers and the young. There are many possible reasons for why France has a much higher unemployment rate than the US and different groups have different interpretations. Some say it’s because of differences in levels of economic performance, others that it is because the government has spend so much on getting the economy ready for Europe’s single currency, that there is no money for jobs. More realistically though, it is because the French government excessively regulates the labor market which tends to make it very rigid. The government with its legislation directly and indirectly limits firms in their hiring and it protects the employed rather than the unemployed.

A comparison of the evolution of the data for unemployment in US and France shows an overwhelming difference in the unemployment rates between the two countries. In the last few years, the same way it has been in the last two decades, the rate of unemployment in the US has been far inferior to the rate of France. The average standardized rate of unemployment for the period of 1996 to 2002 for France is 10.6% whereas it is 4.8% for the US (www.oecd.org).

However, the rate of unemployment in the US increased from 4.2% in 1999 to 5.8% in 2002 while it decreased from 11.2% to 8.7% in France during the same period. But the downward trend of France’s unemployment rate switched around as France saw its rate increase from 9% in last semester of 2002 to 9.3% in first semester of 2003. The US saw theirs remain more stable although the OECD records a small increase from 5.9% to 6% in the same period and somewhat of a peak at 6.4 % for June 2003 (Penn World Tables). On top of that net difference, an alarming fact for French policymakers is that French workers take five times longer than their US counterparts to find new jobs although the French are five times less likely to become unemployed (http://www.cepr.org/pubs/EEP/articles/frenchco.htm).

But this difference in rates, high as it may be, is actually not even realistic. The reason is that the two countries have a different method of estimating the unemployment rate. In France, the unemployment rate is calculated by the ratio of people who are unemployed and who are actively looking for a full-time job to the total active population (people in age and in condition to work). The US, in contrast, uses the international standard of employment which is the percentage of the working-age population holding full-time jobs, to derive their unemployment rate. Therefore, the people who are unemployed and are not actively seeking a full-time job are counted as unemployed for the US unemployment rate but not for the French.

In the US, are counted as unemployed any person of working-age who doesn’t have a job. In France it is the same in principle, but there are exceptions to the rule. For example, “not counted in the jobless figures in France, are people who have accepted early retirement” (International Herald Tribune, Joseph Fitchett, August 1st 97). Also, a recent accounting change in France adopted by the previous government, no longer counts as ''unemployed'', people who work more than 20 hours a week, even in low-paid part-time internships. So, for all these reasons, the difference in rates across the two countries in reality is even more important than what is officially reported.

It is obvious that unemployment is an economic reality that can be completely eliminated in no country. Each country has its natural rate of unemployment which is the optimal rate for its economy and if its government tries to lower that rate too much, it will disturb its economy by increasing inflation (according to macroeconomic theory, there is a tradeoff between unemployment and inflation; that is, if the government tries to achieve lower inflation for example, it will have to tolerate a higher unemployment rate). Unemployment exists, even in the countries with the most efficient economies and it is made up frictional and structural; frictional unemployment exists because of the time it takes for workers to be rehired after being fired or leaving a job. Structural unemployment exists because the education and training of the unemployed are not adequate to the employers’ needs. Another cause for structural unemployment in some countries is the absence of more efficient infrastructure (recruiting offices) that can match demanders and suppliers of labor.

A comparison of the data for economic performance