More sloppy economics from Krugman
Atlantic Blog
Paul Krugman defends the state of the French economy, in particular the small amount of work the average Frenchmen puts in relative to Americans.
First things first: given all the bad-mouthing the French receive, you may be surprised that I describe their society as "productive." Yet according to the Organization for Economic Cooperation and Development, productivity in France - G.D.P. per hour worked - is actually a bit higher than in the United States.
It's true that France's G.D.P. per person is well below that of the United States. But that's because French workers spend more time with their families.
So how does France end up with higher GDP per worker but lower GDP per person? Krugman makes this observation:
There are several reasons why the French put in fewer hours of work per capita than we do. One is that some of the French would like to work, but can't: France's unemployment rate, which tends to run about four percentage points higher than the U.S. rate, is a real problem. Another is that many French citizens retire early. But the main story is that full-time French workers work shorter weeks and take more vacations than full-time American workers.
The point is that to the extent that the French have less income than we do, it's mainly a matter of choice.
A few observations.
1. The French labor market is more heavily regulated. In particular, as in much of Europe, it is much harder to fire people. Tax rates are also higher. That gives employers an incentive to look for more capital intensive methods of production. Cutting back on the use of labor raises its marginal product and its average product, and so GDP per worker rises. Higher GDP per worker can be a bad thing, contrary to Krugman's suggestion.
2. Those higher taxes also mean that working is less attractive, leading to longer vacations and the shorter work weeks. But how does Krugman know that time off work is spent with the family? He doesn't say, and I am not aware of any evidence that they do. They certainly are not having more children.
3. Krugman notes the high unemployment rate in France, but writes as if it is simply sitting there, a fact of life like hurricanes, rather than a consequence of France's labor market policies that make it less attractive to hire people, and less attractive to work.
4. And simply because his sloppiness is annoying me this morning, I note this sentence.
The French family, without question, has lower disposable income. This translates into lower personal consumption: a smaller car, a smaller house, less eating out.
Contra Krugman, eating out is not necessarily a Good Thing. When your after tax wages are high, cooking at home is expensive. My mother did not work, and we ate out rarely when I was a kid. My sister works, my wife works, my sisters-in-law all work, and so we all eat out more because cooking at home is more expensive than it was when I was a kid. This is standard stuff in economics for at least thirty years. It is kind of sad that Krugman seems unaware of it. And those smaller cars are not simply the result of lower disposable incomes. Current gas prices throughout Europe are nearly $5/gallon, thanks to high fuel taxes. With those prices, you don't buy big American cars. You buy cramped, unsafe little cars with really good mileage.?
Does Krugman know anything?
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