Stephen King: As more countries compete for resources, someone's 'rights' are going to take a beating

Demographics of ageing populations are undermining long-held assumptions about pension rights
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The Independent Online

If I were a French citizen in my early 20s, I'd be feeling a bit miffed. I might live in a country containing wonderful mountains, beautiful coastlines, gorgeous wines and sublime cheeses, but these things, on their own, would not be enough. I'd also want eventually to have enough money to be able to ski, to sit in a café in Juan-les-Pins, to sip the occasional glass of St Emilion or enjoy the odd slice of Roquefort.

Sadly, though, I would struggle because, as a French citizen in my early 20s, I might not have a job. And, without a job and the promise of a bourgeois lifestyle, I might think that a bit of argy-bargy in the Place de la République would be an attractive alternative.

According to the International Labour Organisation, the French unemployment rate stands at a little less than 10 per cent. The UK unemployment rate, using the same definition, is 5 per cent.

The French unemployment situation is, therefore, twice as bad as the UK's. Even worse, however, is the situation for younger workers.

For those under the age of 25, France is a bit of a nightmare. Currently 22 per cent of French youth are unemployed compared with about 12 per cent in the UK.

For those twiddling their thumbs standing on Parisian street corners, France must look like a playground for the rich. The thumb-twiddlers have very little chance of joining in the fun.

Seen through the French government's eyes, a key reason for the disturbing level of youth unemployment is the high degree of job protection, a luxury that is largely absent in many parts of the UK labour market.

This might sound a bit counter-intuitive - and certainly did so to some of the rioters last week - but there is some truth to the claim. Companies won't want to hire workers if they cannot, subsequently, get rid of them should things not work out. As a result, they hire relatively few workers, leaving the overall unemployment rate unacceptably high. They also try to reduce the risk of mistakes, so they hire workers with experience. If you're in your early-20s, you're not likely to get much of a look-in.

In response, the government is pushing through the Contrat de Première Embauche, or First Employment Contract.

In its original guise, the Contrat would have allowed employers to hire workers between the ages of 18 and 26 on two-year deals. At the end of these contracts, employers would be free to fire these workers without any kind of explanation or notice: job protection and workers' rights removed without so much as a by-your-leave.

All very Anglo-Saxon, you might think. Indeed, President Jacques Chirac, not the most anglophile of men, baulked at the original terms of the Contrat and, on Friday, promised to sign into law a revised version, giving employers only a year to make up their minds and requiring them to provide a reason for the dismissal of any employee who might not be coming up to scratch. But, even for those who believe in free markets and hire-and-fire philosophies, there's a problem with the Contrat: on either the original basis or on Chirac's toned-down version, the government is creating a two-tier labour market.

By withdrawing job protection for those aged between 18 and 26, the young inevitably feel like second-class citizens. They get work but only with a lower level of benefits than everyone else. And, for this reason, they don't feel happy. Imagine if the same policy were adopted to deal with excessive unemployment among blacks or women. It wouldn't look good.

So, although the policy might work in lowering unemployment, the protests shouldn't really come as a complete surprise, even if those who are currently in their early-20s will soon be in their late-20s and, therefore, no longer affected by the new legislation.

As Hamish McRae wrote in The Independent last week, what the French have is a classic "insider/outsider" labour market problem. Those who have got jobs want to protect their rights and will resist reforms. They are "insiders", content to hang on to their benefits, even if that means keeping others out of work.

Those who haven't got jobs come up against a government that wants to reduce unemployment, but cannot easily remove the rights of the "insiders".

As a result, the young - many of whom are unemployed - are treated as second-class citizens. They are "outsiders", making up only a small minority of the overall labour market and, hence, largely powerless at the ballot box. Violence is another way of attracting attention to their plight. The "insider/outsider" problem is not, however, confined to the labour market and nor, for that matter, is it confined to France.

"Insiders" want to hang on to their rights but, by doing so, they leave other people disadvantaged. In this sense, insiders don't have rights at all. What they have, instead, are privileges.

In Western society, we've got used to plenty of these privileges.

We think they're rights but, too often, they're simply a reflection of the fortunate ways in which income has been redistributed across society.

When Chinese and Indian workers couldn't get access to global capital, Western labour was able to gain the lion's share of wage income associated with an increasingly effective global capital stock: much of that income was used to create workers' "rights".

When the baby boomers swelled the ranks of working-age populations, it was relatively easy to generate enough tax revenues to enforce pension "rights". No longer do these assumptions hold.

Globalisation has increased capital and labour mobility. Capital goes to countries where labour is cheap and workers are prepared to work for longer than the French 35-hour week, thereby undermining French claims that a 35-hour week is a right. So long as those in work insist on hanging on to these privileges, those who are out of work will find getting a job difficult.

Meanwhile, the demographics of ageing populations are undermining long-held assumptions about pension rights.

We forget that pensions were first introduced to protect only the very few people who lived beyond their mid-60s.

In the 1930s, for example, US male life expectancy was 65, and it is no coincidence that the official retirement age was also 65. Nowadays, American men can reasonably expect to retire at 61 and then live to 78.

No one's suggesting it's a bad thing to have an extended holiday towards the end of one's life, but it's a privilege that's developed over the past 50 years rather than a God-given right.

As more countries compete for scarce resources, and as populations in the West age, someone's "rights" are going to take a bit of a beating.

Society will not be able to simultaneously support the pension rights of the elderly, the employment rights of workers and the education rights of children, at least not on the basis of people's current expectations.

So when you see headlines bemoaning the quality of health provision for the elderly, the size of the tax burden on the workers or the tuition fees for undergraduates, recognise that we're engaged in an economic battle.

Some of our privileges will have to go but, in the process, the anger on the streets of Paris could easily spread to other parts of the rich industrialised world.

Stephen King is managing director of economics at HSBC

stephen.king@hsbcib.com

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