Friday, November 25, 2005

On the French

The average French worker is just as productive as the average American worker. But the former works about 30 per cent fewer hours per year than the latter. As a result, France is only about 70 per cent as rich as the United States. Why do the French work so much less? Edward Prescott, who won the Economics Nobel in 2004, reckons it is largely because of high taxes. Olivier Blanchard of MIT has a more nuanced view: lower working hours in France, and elsewhere in Europe, are caused by a combination of high taxes and restrictive labour market regulations. Edward Glaeser and Alberto Alesina, couple of Harvard economists, stress the role of the unions in restricting work hour. They further argue that fewer hours at work, and thus higher leisure time, reflect the society’s choice: basically the French choose to take longer vacations than Americans, even if this means they drive smaller cars and live in smaller houses. A cruder version of this is the argument, familiar to anyone who has ever had a drink with a Parisian, that the American society may be richer, but the French have √©galit√©. Well, the events of the past few weeks seriously question that notion.

French labour market regulations have other interesting consequences too. An interesting aspect of French labour law is the requirement that employers (with more than 10 employees) offer either highly subsidised canteens or pay 50 per cent of the cost of their lunch. This has led to the creation of at least four companies that manage the subsidised lunches: Ticket Restaurant, Cheque Dejeuner, Cheque Restaurant and Cheque de Table. Employers pay money to these companies (including a fee) which then send coupons ("cheques") to the employees which may be redeemed at any restaurant that displays the appropriate sign.

Now, it seems likely that this restaurant cheque system increases the quantity of restaurant meals demanded other things equal. It would also likely increase the consumption of wine — one is less likely to consume wine eating a sandwich in the office! This suggests that the number of restaurants in France (and Paris in particular) is higher because of this system, but also the price of meals is probably higher too (supply of restaurants not being perfectly elastic).
Clearly this comes at a cost to employers: there is an extra fee above the cash equivalent payment to employees. Also, at least four companies exist for the sole purpose of providing a service under this labour law. Restaurants too have the added expense of dealing with a relatively inefficient payments system (though this might be offset by increased patronage). Employees too are arguably worse off — their consumption bundle is constrained and the cash equivalent is likely to be preferred.

That is the theory anyhow. Perhaps some bright young chap will work out how costly this restaurant cheque system is. Meanwhile, next time you're in Paris and enjoying a nice meal, think that the huge selection of restaurants (with inflated prices!) is at least partly driven by a quirky French labour law!