Friday, June 06, 2008

Employment Laws in France


Q: What do you get from strict employment laws?
A: A substitute from labor to capital.

In France, nearly every restaurant and bar I went to used these hand held point of sale systems. They allow waiters to serve more customers, so reduce the need to hire more people. Employment laws, ostensibly designed to improve working conditions for employees, often reduce certain types of jobs on the margin.

3 comments:

Gabriel said...

Yes, yes, but does it reduce welfare?

I think that far more difficult to answer...

In traditional welfare analysis, work is a bad, so you would actually want less of it, caeteris paribus.

Matt E. Ryan said...

Increasing productivity decreasing welfare...or increasing labor regulations decreasing welfare? I think I know which side of the ledger I'm on...

Eli said...

The marginal cost of the devices is probably low, and, as gabriel says, work is a bad, so the use of the devices probably raises welfare. However, the investment in the R&D to create the devices was spurred solely by the labor regulations. The investment is what is inefficient and more than outweighs the gains from the higher marginal productivity of the workers (otherwise, it would have been pursued without the regulations).

They are not used in the US because the price must be above MC to compensate for the R&D. This rent is just a transfer and has no welfare implications. So we have the odd situation in which it is welfare-reducing for the French to develop the device and it is welfare-reducing for Americans not to use it.