On the French Student Rioters and Job Security

This (in German) with two twenty-somethings, a German male student and the French female 'student union leader' is revealing. The last question is: "How do you want to live 10 years from now?" The mutual answer: "I don't know, actually".

We act as though comfort and luxury were the chief requirements of life, when all that we need to make us happy is something to be enthusiastic about.
~ Albert Einstein

Not knowing what you want, while knowing what you don't want is probably fine in real life but it is not a promising foundation for proposing policy. If you know what you want, you intend to propose changes, you want to achieve a gain. If you know only what you do not want, you intend to avert changes, you only want to avoid a loss. This latter case indeed seems to be the practical result of the student riots.

It is futile to fight against, if one does not know what one is fighting for.
~ Ayn Rand

What kind of job security do they want?

There is a more fundamental problem with their cause, though. They may not know what they want 10 years ahead (as I said, nothing wrong with that and perfectly fine at 20, just not a good basis for arguing for or against a proposition), but they know what they want right now, after they graduate: job security. That is reasonable: whatever they may want in 10 years' time, they are more likely to get achieve it if they are more likely to start out with a job and start earning.

As far as I can tell, there are two connotations of job security: first, the security that it will be hard for your employer to fire you, and secondly, the security that there is a great availability of jobs (that is, a great demand for workers) and finding a job will not be hard, which means finding the best job will be easier for the individual (because the demand exceeds the supply). In Germany, France and other welfare states, the first kind of job security is guaranteed by legislation and unions, at the expense of the latter. In less dirigist states (as regards the labour market, such as the U.K. and the U.S.), there is low job security in the first sense but far higher employment rates. If you know of any (market) economy where there is unusually high job security and unusually low unemployment, I'd be glad to hear about it!

Have your cake and eat it, too?

"Why can't you have both?", I hear you ask. Well maybe you can, but then you would have to show me that magical economical device that nobody has discovered yet. The one that works

• better than legislation coercion (which inherently oppresses the freedom of people to think and act individually and autonomously to improve their current situation, consequently driving down the standards of living and supply that are the exclusive result of the autonomous choices of individuals)
• and better than the most efficient, democratic, peaceful economic device in existence, the one that wasn't designed by committee: the voluntary exchange and co-operation to mutual benefit and gain (which, incidentally, is the opposite of fraud and force, which despite this logical clash some people view as the consequences of freedom, rather than the only dangers to freedom)

Where do I get this intuition from? It stands to reason that more security for the employee means more risk for the employer. That's fine, dealing with risks and rewards is at the core of individual choice, and thus the foundation of 'business'. A higher risk of labour however equates to a higher cost of labour. Thus, whatever budget there is for labour is translated into fewer jobs.

Protecting the interests of workers?

My point is that the labour and French student unionists should not be mistaken about the fact that with every added job security measure for the workers they aim to protect, the following happens:

• the cost of labour increases, and demand for workers in the labour market decreases
• unemployment increases
• the welfare state feeds more unemployed people, taxes go up
• these rising taxes eat into the pockets of those remaining workers who enjoy the job-security privilegues at the expense of those who don't (the unemployed), thus causing stagnating or decreasing real wages*

I can perfectly understand the desires of employees, students and unionists. "Wouldn't it be so much nicer and easier if only...?" While I can understand their desire, they don't seem to understand that every desire can be fulfilled only at a cost. Everything (physical) comes at a cost. If their employers or would-be-employers are in business, it means that they have learned a very basic lesson very early on: that you cannot demand demand (for your goods or services). I'm still waiting for legislation and unionists to also acknowledge that you cannot demand demand (for your labour).

Back to the French students—if they would know and be open about this very fact: that the privilegue they demand (the privilegue whereby they cannot be fired easily so the risk of taking them on despite a missing track record of past achievements---and thus no indication whether they prove their worth---is rather high) will reduce their chances of entering into the work force, many of the students might question their stance. As I said: whatever they may want in 10 years' time, they are more likely to get achieve it if they are more likely to start out with a job and start earning.

* That last bullet point also goes to show that if the cost of labour goes up (not the same as a wage raise due to a rise in productivity!), it is not the employee who gains, but the unemployed, most of which would not have to be unemployed if not for the privilegues of the employed. Central redistribution hides many such subtle relationships such as the one whereby employees effectively pay alms to the unemployed (through taxes that pay unemployment benefits) because the former group's privilegues deprive the latter group of the possibility to put their own skills to work.
I'm pointing this out because if you bring up the increasing cost of labour, people tend to interpret this as a cheapskate argument, thinking that you want to keep labour cheap to make more bucks. This is not the case. Wages are linked to productivity (unless there is an unhealthy balance of more supply of labour than there is demand for it---I have sketched out one major cause of decreasing demand for labour), and as a worker's productivity increases thanks to technological advances (a typist sitting at a PC is more productive than one sitting in front of a typewriter, who would still be more productive than a scribe would be), it is the worker who is paid more: the machine gets no money! Just look at the past 200 years and at the ever-rising living standards in the semi-capitalist  industrialised countries: these rises are not a miracle, they are not "just the way of history" (because the rises have been unprecedented) and they can't just be commanded by some leader or minister and miraculously pop up. They are the result of workers being able to produce more in that part of their lifetime they decide to sell, due to technology advances that were only possible once those capable of conceiving of them were free to think and act for personal gain.

The meaning of economic freedom is this: that the individual is in a position to choose the way in which he wants to integrate himself into the totality of society.
~ Ludwig von Mises

There are only two situations that allow for securing a fair deal for the worker. If there is less demand for than supply of labour, the worker is in a bad position for negotiation, he can only resort to means of force (for example, pressure through legislation) to hopefully fulfill his demands. If there is more demand for labour than there is supply, the worker will get a fair deal or he walks to some other employer. In regulated markets, you can only observe this effect in the booming industries such as the technology industries (emerging markets are still free of regulation), where companies compete on the high salaries and the benefits they afford their employees.

My guess is that most workers would favour the latter situation if only it was possible in all industries. In a future posting, I will investigate what factors contribute to driving the demand for labour down. I'm honestly interested in this. I have already highlighted one cause of a shrinking demand for labour, but there may be more. Suggestions?

If an exchange between two parties is voluntary, it will not take place unless both believe they will benefit from it. Most economic fallacies derive from the neglect of this simple insight, from the tendency to assume that there is a fixed pie, that one party can gain only at the expense of another.
~ Milton Friedman