To see is to (dis) believe

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Image courtesty of: http://www.wsj.com

Disclaimer: the purpose of this post is to satisfy the author’s curiosity about the difficulty of finding a job in Paris. Due to limited resources, it has been restricted to briefly discuss whether the huge cost of hiring is causing the apparent “disfavor” of foreign candidates. It does not intend in any way to explain any socio-economic-political problems faced by the country today. Neither does it propose any solutions.

The conclusions presented do not reflect the French population’s opinion. They are solely the author’s point of view basing on her own experience and situation analysis.

A light, leisurely tour in the net…

I had started to write about my previous post “A color for disbelief” ,when I decided to do some light research online. I wanted to find out just why it’s so hard for a non-French to find a job in Paris. There were soooo many blogsites and fora about this topic. I did find many helpful ones and so many whiny ones, too! But for the purposes of this post, I would recommend a couple of articles available at:

These statements partly answer my question. Plus if I add this information to my own experience and other people’s stories, I could say that when we look at the supply side of the labor market it’s not a matter of foreign applicants presenting a lower-level training. It’s more a question of the selective process candidates undergo and the criteria being used when choosing the finalists.

What about the demand side? This made me think about the employers and the price they have to pay to acquire labor. It occured to me that perhaps this is one factor that’s discouraging hiring in general. And if we include the economic crisis in the picture, it could explain why the French are more favored by local companies when seeking to increase their staff.

By the way, no matter what they tell you: it’s the companies that demand work and the employees that supply them. Even if the ads announce “JOB OFFER”, technically they are the ones that need the labor to do such job.

What is the cost of hiring?

The cost of hiring basically includes: salaries and wages plus various expenditures such as payroll taxes and cost and benefits to be paid by employers- not to mention the operating expenses (setting up a computer, telephone line, in some cases a mobile phone, company vehicule, etc…). In France, social taxes (paid by the employee) average up to 22% of the gross salary, while the costs and benefits paid by companies average to 42%.

If a company decides to hire a foreigner, it has to take charge of organizing the person’s work authorization. This is a pre-requisite for anyone who wants to start processing his visa/residence permit and would raise the hiring cost. This is not only measured in terms of money but also in terms of time spent, effort exerted and those “things left undone because of having to allocate money, time and effort in applying for a work authorization”. The latter is what economists love to deal with and they call it opportunity cost. We’ll get back to that later.

As for EU nationals: technically they’re still foreigners but they have the liberty to move about and work within the EU zone. Because of this, French companies have theoretically started to widen their search; they are not anymore obliged to hire French candidates first. In theory. But with the high unemployment rates (10,5% for France and 8,4% for the city of Paris), it shouldn’t be surprising if candidate searches are still leaning towards French citizens. Here we can also insert the opportunity cost of not hiring a French national.

The opportunity cost is defined by Investopedia as “the cost of an alternative that must be given up in order to pursue a certain action. Put another way, the benefits you could have received by taking an alternative action.”

On one hand, in the case of using a company’s resources to prepare a work authorization: this would mean hours of an HR personnel’s time invested in the said task instead of, say, interviewing candidates, helping out in a team project or simply archiving letters and documents (the French are still big, big fans of hard copies of documents and snail mail). On the other hand, the opportunity cost of not hiring a French national is simply passing up the chance of employing a more competent and brilliant worker, compared to the foreign one (I really have the impression that the French take a lot of pride in themselves- which is good! I mean, why not?).

Is the cost of hiring affecting companies’ decision to employ?

You’ve probably heard about the protests in France concerning the employment reforms to be applied by the government. (I actually bumped with the protesters a couple of weeks ago, while I was taking my son for a walk. The demonstration took place in a roundabout 2 minutes away from our house. Ah! to live in Paris…)

Part of the agenda include lowering hiring costs. The idea is that once these costs are lowered, firms would have enough resources to boost their manpower. In fact, some of the proposals regarding hiring costs are:

  1. Part-time and full-time workers could be paid less for over time
  2. Less compensation for workers fired due to sickness or accident (as long as the company is not seeking replacement for the said worker)
  3. A firm- as per agreement with the labor union- could lower employees’ salaries and increase working hours even if it’s not undergoing financial difficulties (the changes could take effect for a maximum of 5 years)

It is widely known that France is a good place to be an employed, no matter how big-time or “small-time” the job is. In the short span of time when I worked, I noticed that the contracts promote the workers’  (ergo, the society’s) welfare: one is assured against accidents or sickness, there are compensations for unemployment, there’s a lot of vacation days, the company sets up a pension plan, the company also usually sets up a private health insurance to top-up the public one, etc…

(Thanks to this, the quality of life in France is among the highest in the world- there is relatively low level of inequality prompted by a generally high level of well-being. The proposed reforms are supposed to boost employment rate and consequently, the country’s economy. But it would also clearly lower the standards of living of an average Jean-Pierre.)

All of these mechanisms propped up to protect a worker generate certain costs shouldered by both employee and employer. But as I’ve mentioned earlier, employers pay an average of 42% of an employee’s gross salary in costs and benefits. That is an important chunk of enterprise money that could go to a “better” use.

Could this really be the reason? is labor really “too expensive” for employers to purchase? And thus when they could purchase it, they choose their countrymen so they don’t incur in unnecessary additional costs? In this sense, it apparently seems so (although it would not explain why other EU nationals have a hard time finding a job).

What do the heavier research materials say?

According to on OECD review dated a year ago (April 2016), France should “take measures to make employment contracts more flexible”. This translates to simplifying layoff procedures.

Now, does this mean that the problem lies in the costs of firing employees?

Pausing to think about it for a while, it does make sense: if a company cannot easily get rid of an inefficient worker who has been with them for a long time, there’s little incentive to hire a new one (firing could be much costlier than the profits a new employee could bring). Particularly in the French case, laying off employees is really hard. France seems to take the OECD’s word for it because if we go back to the Labor Law Reform agenda, we may find articles such as:

  1. An employee dismissed without justifiable cause is not legible for any compensation from the company
  2. Permissive dismissal of employees in case a company sells all or part of its economic activity
  3. An employee who refuses a modification in his contract (usually to lower his salary or increase his working hours with less compensation) following a deal with the labor union could be dismissed.

… all of them geared towards cheaper staff cutback to facilitate hiring.

Reading through other research materials, I found answers as varied as the schools of thought where the authors come from (some of the reasons presented were quite off-topic for the content of this blog). Though I came across a very interesting report from McKinsey (2012), which not only suggested reform on labor market conditions but also other mechanisms such as supporting “job-creating growth for the high- and low-skilled alike”.

As far as I’m concerned, this is a very englightening and practical response. While it may be true that French Labor Laws are strict, perhaps the reason why companies are not hiring is because they simply cannot create jobs and thus have no need for additional staff…??

So why is it so difficult to find a job in Paris?

While I actually enjoyed the brief research I did for this post, I’m not so sure I could say the same about the reader. Either you are pulling your hairs by now, ready for the big punchline or you simply stopped reading right here.

Bear with me because you see, a company owner was interviewed by the Financial Times (FT) in early 2013 and according to him, he’s doing his best to keep his staff below 50 persons. The reason is that he doesn’t want to “exceed a threshold under the labour code which imposes an increase in obligations in terms of worker representation, redundancy procedures and other costs to the employer.” I’ve inserted a chart* below from l’Institut National de la Statistique et des Études Économiques (INSEE). The Gross Domestic Product’s growth rate (GDP) over time will help get my point across:

GDP and its main components

(Note: GDP growth rate tells us how much an economy has grown from one period to another. A negative growth rate means a decrease in production; a lower but positive GDP growth means an economic slowdown.)

Notice how in Q1 of 2013, France’s economy was still on the uprise- the same period when the FT interview took place. My point is, if employers (whether from small- or medium-sized companies, they are still the ones hiring!) were already having this kind of thought during prosperous times, imagine their reaction during an economic downturn!

The same company owner also stated that he has to “employ people with ready-made skills who you are sure will fit straight into the job”. Going back to the case of foreigners applying for jobs in Paris, this seems to explain why they are not easily hired. Recruiters simply cannot afford to risk engaging someone who will make them incur in increased training costs.

In my particular situation, the simple answer is: I came in the right place at the wrong time. It was 2014 and the economic crisis was at its peak in Spain. In the meantime, my husband and I believed that France was doing just fine. It was not after our arrival when we realized that crisis was already budding in the neighboring country.

If we look back to the chart and take the middle block of data (Q1, Q2, Q3 and Q4 of 2014), notice how the GDP growth just dropped from the end of 2013- which was when I started looking for a job in Paris- and did not recover until the end of Q2 in 2014. It’s also important to consider that this recovery was a slow, small one which was not enough to replicate the features of a more booming Q1 2013.

(Facepalm)

I don’t believe that hiring costs hugely affect employment decisions by companies. In my opinion, if there’s need for personnel and there are resources available, a company will hire. And if a person is the right fit for the job, he will be employed even if it meant a little more effort from the recruiting side. That’s why negotiation was invented.

The complicated answer? Well, I’d like to invite you to review the literature along with me and perhaps start a debate? The more varied the schools of thought, the better!

Thoughts to ponder

I truly like ending my posts with a moral lesson or some inspiring anecdote- anything to leave the reader with a nice, feel-good vibe.

Unfortunately, economic analysis doesn’t allow much for that luxury. At best, we could count on an optimistic (albeit unsure) projection in the future and a very clear vision of what happened in the past. In the case of this post, I’ll stick to the latter…

There was really no way for me to know that France was already suffering from a sharp economic decline during the moment I decided to search for a job. The kind of chart I presented above doesn’t get “done” until a certain period of time has passed. Meaning, that the earliest I could’ve known about the French economic crisis was at the end of Q1 2014, and by then I was already working in that 5-month contract outside of Paris.

This is the beauty of economics- it makes you learn the lesson the hard way but also gives you an understandable image of the past so you won’t commit the same mistakes in the future. It allows you to (dis) believe in what you know for yourself.

 

*Chart contents:

Q1, Q2, Q3, Q4- 1st Quarter, 2nd Quarter…

GDP- Gross Domestic Product

Consumption- household consumption expenditure

Inventory changes- Goods produced minus goods sold. (An excessive increase in inventories may signal aggregate demand is slowing down as there are more goods produced than sold.)

GFCF- Gross Fixed Capital Formation (investment)

Net foreign trade- External balance (Export-Import)

Sources:

  1. Eurostat
  2. INSEE
  3. Investopedia
  4. “Comment calculer le coût d’un salarié”, available at: http://www.petite-entreprise.net/P-3848-88-G1-comment-calculer-le-cout-d-un-salarie.html
  5. “French Attempt at German-Style Labor Reform Flounders”, available at: http://www.wsj.com/articles/french-attempt-at-german-style-labor-reform-flounders-1417684679
  6. “French Labor Law Reform not supported by Economic evidence”, available at: http://cepr.net/publications/op-eds-columns/french-labor-law-reform-not-supported-by-economic-evidence
  7. Loi travail, available at: http://loitravail.lol/
  8. “OECD: France must Reform Labor Market and Cut Spending”, available at: http://www.euractiv.com/section/social-europe-jobs/news/oecd-france-must-reform-labour-market-and-cut-spending/
  9. “France battles with labour market reform”, available at: https://next.ft.com/content/05b54c84-5a63-11e2-bc93-00144feab49a
  10. “Unemployment and Labor Market Rigidities: Europe versus North America”, available at: https://wwz.unibas.ch/fileadmin/wwz/redaktion/fai/EIB_Arbeitsmarkt_HS08/Nickell.pdf
  11. “Does Employment Protection Inhibit Labor Market Flexibility? Lessons from Germany, France, and Belgium”, available at: http://www.nber.org/chapters/c11255.pdf
  12. Defition of “inventory changes”, available at: http://pages.stern.nyu.edu/~nroubini/bci/inventories.html
  13. “French Employment 2020: Five priorities for action”, available at: http://www.mckinsey.com/global-themes/employment-and-growth/french-employment-2020