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The Magic of 49

May 6, 2012 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Economic Debates, Government, Macroeconomic Measurement, Regulation, Thinking Economically, Uncategorized • 246 Views    No Comments

Sometimes, one employee makes a huge difference.

In France, one extra worker can mean that a firm needs to create worker councils, establish profit sharing, and report to employee representatives when firing people for economic reasons.

BUT…that worker has to be #50.

As a result, there are 2.4 times as many businesses in France with 49 employees as with 50. When a growing enterprise hits 49 workers, a typical entrepreneur starts a second company rather than expand beyond 50. Or, that person avoids hiring #50.

During February 2010, software maker Viveo Group decided to lay off approximately 60 people from the 180 it employed. Required to present the plan to its worker councils, Viveo ultimately found itself in court with a rejected proposal because the company had forecast an 18% sales increase. But then, on May 3, the appeals court said a healthy company could lay off workers. If the firm had lost, it would have had to restore the jobs and pay 2 1/2 years of missed wages to its former workers.

Our bottom line: With the French youth unemployment rate at 23%, the issue is jobs and less of the labor market rigidity that government has perpetuated. Enable businesses to make their own firing decisions and then they will have more of an incentive to hire the 50th worker.

Looking at nearby French and German towns, this NY Times article contrasts their business cultures. For my facts about France’s labor market regulations, the Viveo example, and added facts about France’s labor market rigidities, this Bloomberg Businessweek article is a good source while this Reuters article describes the Viveo court decision. Also, you might want to look at eurostats for youth unemployment data.

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