Sarkozys Economic Policy

CES, November 1, 2007Sarkozys Economic Policy

1Solving ProblemsThe French didnt elect me to comment on their situation. They elected me to solve problems.

2Caveat: Beware of Economic StatisticsTo say that net output to-day is greater, but the price-level lower, than ten years ago or one year ago, is a proposition of a similar character to the statement that Queen Victoria was a better queen but not a happier woman than Queen Elizabetha proposition not without meaning and not without interest, but unsuitable as material for the differential calculus.

-- John Maynard Keynes3We are a great nation but we are losing ground4Well-Being: log real gdp per capita

5Keeping up with the Joneses

From pwt 6.1, note 30 glorieuses6Keeping Up with Joneses 2From pwt 6.2, no data for Germany before 1970, note transition at 19917Trade Openness

8FDI flows910Foreign Direct Investment Inflow 06

11Portfolio Investment

12Investment

13Why are we losing ground?We are highly productive .1415Labor Productivity Trends

16TFP Growth in Services

Reflects adoption of IT, according to Aghion and Howitt; from Fed study1718 but we dontWork as many hoursWork as many yearsPut as many people to work19Annual Hours Worked per capita

20Hours worked change over 3 decades

2122232425

Current Unemployment26Tax WedgeFranceCentral gvt20.1%25.9%26.8%32.8%AW=26731Sub-central0.0%0.0%0.0%0.0%Combined20.1%25.9%26.8%32.8%Employee SSC13.4%13.4%9.4%9.5%All-in33.5%39.3%36.2%42.2%Employer SSC41.2%41.2%37.6%37.6%Total tax wedge62.4%69.9%76.1%81.8%GermanyCentral gvt33.5%40.4%47.2%53.8%AW=37319Sub-central0.0%0.0%0.0%0.0%Combined33.5%40.4%47.2%53.8%Employee SSC20.5%20.5%12.9%0.0%All-in54.0%60.9%60.1%53.8%Employer SSC20.5%20.5%12.9%0.0%Total tax wedge61.8%67.5%64.7%53.8%Us, lowest wage group, employer ssc 7.7, tax wedge 34.6; Total tax wedge: The combined central and sub-central government income tax plus employee and employer social security contribution taxes, as a percentage of labour costs defined as gross wage earnings plus employer social security contributions. The tax wedge includes cash transfers (see Explanatory note 1).

27Government Spending and Debt2829Additional Budget from Ageing Population

30Growth of Public Debt

3132

33Policy ImplicationsActe pour le travail, lemploi, et le pouvoir dachat (TEPA)

Supply Side (Travailler plus)Detaxing of overtime, nip at 35 hr wkCost 6 bn eurosReform of special regimes, later of general regimeLabor market reforms=UNEDIC/ANPE merger, continuing edSingle labor contractMinimum service

34Policy Implications 2Demand Side (plus incentives)Mortgage DeductionInheritance tax reductionFiscal Shield ReductionTotal cost: 8 bn euros

35Policy Implications 3Deficit ReductionMedical copaysEnd special regimes, increase contribution timeSocial VAT??

Purchasing PowerGalland, Raffarin, and Royer Laws36Policy Implications 4Eurogroup meeting, clashes with Germany, Trichet, JunckerInterest ratesExchange ratesEnergy market rationalization/nationalization (GDF-Suez, Areva, Gazprom)EADS reorganizationCompetitivity ClustersUniversity Reform

37Purchasing Power & Career Incentives38Consumer Price Index39Stagnant since 200240Income and Wealth Distribution

Source: Louis Chauvel, Les classes moyennes la drive, p. 2741Earnings Dispersion

Src: oecd employment outlook 200742Earnings DispersionDecile ratios43Unionization Rate

Lowest unionization rate in OECD; Algann and Cahuc note that this might be thought to be linked to globalization, service sectorization, and change in nature of work force, but between 1973 and 2003 rate roses in Scandinavian countries and Finland. Link low unionization rate to high minimum wage.44Min Wage inv. Rel. to Union rate

Algan Cahuc 2007 p. 7545Pct workers paid minimum wage

46Research & Development

Figures for university spending are even worse: 1.3 pct gdp for Europe compared with 3.3 pct for US47One can be impressed, I think, without being surprised, but I dont think one can be surprised without being impressed.

-- Mme de La Fayette48Extra Data49

Note total work force 25 million, 40 pct women employed part time50Feuil1Labor force in employment, classified by employment statusIn 2005, thousandIn 2004, thousandIn 2003, thousandWomenMenTotalWomenMenTotalWomenMenTotalFull timePart timeFull timePart timeFull timePart timeFull timePart timeFull timePart timeFull timePart timeNon-payroll workers6611971,766942,7196811841,719912,6757191861,800892,794Payroll workers (wage- and salary-earners)7,2483,31810,96167522,2027,2203,21911,04662422,1097,1153,16210,97864121,897Temporary workers131353602254812028324204921252930518477Apprentices802619435335722817329301592317529285Fixed-term contracts5914065821341,7135903975621381,6875743985211221,615Public sector203140139425231951241374249818113011635460Private sector388266443931,190395273425961,190394268406871,155Interns and subsidized contracts112135116724341221461295845514515015066512Public sector326429201443970381916658705429211Private sector807287522908376913928987819737301Open-ended and other contracts6,3352,7179,71041119,1726,3162,6209,85838019,1746,2122,5629,82740619,008Total7,9093,51612,72776924,9217,9013,40312,76571524,7847,8343,34912,77973024,692Scope of coverage: economically active persons in employment aged 15 and overSource: INSEE, labor-force surveys