Is France less distorted than we think?

When you think about market distortions through regulation and taxation in a developed economy, you think first about France. It is the prime example of how excessive government intervention can lead to disincentives for production and to major misallocations of resources across firms and sectors. This all accepted wisdom, except nobody actually measured the misallocation part.

Flora Bellone and Jérémy Mallen-Pisano do this using the Chang-Tai Hsieh and Peter Klenow methodology which consists of using a model of firms heterogeneous in their use of capital, labor and technology. Taking this to data, distortions in the use of factors at the firm or the sector level translate into lower aggregate total factor productivity. Hsieh and Klenow showed that there were massive distortions in China and India relative to the USA. Bellone and Mallen-Pisano show that for France, there are no more distortions that in the United States. Thus, there are no misallocations across firms or sectors, but it remains that there can still be a uniform misallocation across the entire economy, say, because of distortions on the labor market applying equally to all firms.

Ethnic ghettos and unemployment

Both in Europe and the United States, minorities face significantly higher unemployment rates. In addition, they live in places that are farther from work than others, or at least their commuting options make it more difficult to get to work. Are the two linked? Obviously, if you do not live where the jobs are, unemployment gets more prevalent. But one could also move, and this may be more difficult for minorities, for various reasons. But before going there, one needs to determine how much of the unemployment rate is due to this spatial mismatch.

Laurent Gobillon, Peter Rupert and Etienne Wasmer pick up on a previous paper of the latter two, which I discussed here. In this spatial search-and-matching model, commuting time acts as a friction, but can only explain a fraction of the unemployment rate gap between "majorities" and "minorities". So other factors are clearly at play. The fact that minorities are de facto confined to particular areas certainly plays a role here.

Department size and research productivity

This is a bit late for the current job market for Economics PhDs, but say you have to choose among several job offers (lucky you). The departments are are all of equal prestige and working conditions, salary, and geographic environment are all comparable. The only difference is the size of the faculty. What offer should you take if you care about your future research output?

Clément Bosquet and Pierre-Philippe Combes say you should go for the uniformly good, more field diverse, and larger department. At least this applies to French academic economists. Even more interesting, they observe that department characteristics are as important as researcher characteristics. The initial placement of a researcher thus matters a lot for her future, and this may explain why there are so few success stories after an initially poor placement, at least in Economics. Of course, the academic market in France is very different from any other country, so I am not sure the results can generalize, but this is a start.

Why is it so difficult to find a job in France?

For anybody thinking about labor market policy, France is a basket case of how you should not give in to the pressure from the street and rigidify the labor market to almost everyone's disadvantage. With such extreme job protections, do then labor market status transitions look markedly different from other countries?

Jean-Olivier Hairault, Thomas Le Barbanchon and Thepthida Sopraseuth use administrative and labor market survey data to build time series for job separation and job finding rates. While their analysis is somewhat limited by the fact that they cannot capture a third state, "not in the labor force," the results are strong enough to conclude that contrarily to, say, the US the job finding rate is the major driver in changes to the unemployment rate. In other words, employment protection is effective and the job separation rate fluctuates little with economic activity. However, hiring fluctuates a lot, and given the high average unemployment rate, it is a clear indication that employers are scared to hire workers they could not get rid of if necessary. This is a clear indictment of excessive employment protection.

Are smart meters worth it?

Smart meters that allow you to monitor and manage electricity consumption are all the rage now. Power companies push them to consumers as the best deal that has ever been offered. And it looks enticing, as it promised more flexibility and the possibility of applying peak pricing in areas where this is not yet current. But is there really that much to gain? After all, these meters are not inexpensive technology.

Thomas-Olivier Léautier helps us here. He estimates how the responses of French households would be once they have smart meters and they can adjust their consumption to market prices. The outcome is humbling: the yearly savings would amount to 1-4€, which is likely less than forgetting to close a window one day in winter and much less than the 25 &euro/year cost of a smart meter. I see two reasons for this result. First, most households consume little energy. Second, their consumption pattern is not that flexible.

But would this result extend to other countries? North American households use a lot more electricity than French households due harsher climates and more carelessness about energy consumption. A smart meter there may in particular make people more aware of their power consumption and how one can reduce it to save money. This is much like a car that shows current gas consumption entices the driver to use less fuel. And this effect may make it worth it.

Tax credits for economic development do not work

Every government, from the most local to the national one, touts its success in attracting business and creating jobs through well targeted tax credits. The latter obviously come at a cost, but that is supposed to be well-compensated by new tax revenue from increased income in the particular jurisdiction. Or so these public officials think.

Luc Behaghel, Adrien Lorenceau and Simon Quantin study the French tax credit initiatives that were supposed to bring more economic activity in some rather deserted rural areas. These tax credits were implemented in various ways across time and firms, which allows to estimate their impact. And no way which way you look at the data, there is nothing to be found. That is pretty bad. In they had found an impact, one could have discussed whether it was large enough to generate increased public revenue to fund the tax credits. But there is none of that. Pure waste.

Spouses and unemployment duration

When unemployed, some people search more intensely for a new job than others. That will of course depend on their personal circumstances. The urgency of getting some income is obviously more pressing when there is little alternative income, and one such alternative is the spouse.

Stefania Marcassa studies French couples where one spouse works and the other is unemployed. It turns out unemployed men search longer for a job if their spouse earns less, while it is reversed for unemployed women. That turns out to be consistent, in a standard labor search model, with a breadwinner stigma for men. French men do not seems to be able to bear the thought of having a successful wife while being unemployed, while women see no hurry to work if their husband is doing well. Clearly, the sexist ones here are the men.

About fertility declines in wars

A typical war has a large impact on demographics. People die, mostly men. Fewer people are born, because men a missing, both because they are on the battlefield or, as mentioned, dead. At the end of the war, fertility shoots up to catch up for "missed opportunities", and we get baby booms. Well that is the conventional wisdom, and it is not necessarily right. For example, there is some evidence, discussed here before, that the baby boom after World War II was not about the men returning home and catching up on baby making. And one could also challenge the idea that fertility drops during the war because of the absence of men.

Guillaume Vandenbroucke does this for World War I in France. he draws a model of fertility choice where couples factor in that the potential father may die in war. Of course, this reduces fertility, but the question is how much. To get an answer, the model is carefully calibrated to pre-war fertility, mortality and income figures. Then 97% of the drop in fertility is explained by expectations. Of course, this assumes that the French correctly predicted the probability of death. Given that this war lasted much longer than expected and introduced killing technologies of never-seen-before efficacy, I doubt this is a correct assessment of the expectations at the time.