Case Study: International Labour

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France

Provide a statistical profile of your allocated country's labor market and present an overview of the most important trends and developments in this country's labor market over the past decade.

One cannot discuss the country's labor markets without discussing the financial crisis of 2007- 2008. For 6 of the past 10 years, the housing bubble has caused substantial declines in the country's employment and subsequent GDP growth. France continues to suffer substantially as a result of over speculation on the part of international investors.

The financial crisis resulted from a mixture of both bad judgment and unethical decision making. Both of which have had extreme implication on the labor market of France. Frank Vogel, cofounder of Transparency International, a nonprofit organization charged with ranking nations by degree of corruption remarked, "so many people engaged in so many aspects of finance have lost their ethical compass and put short-term personal gains above other considerations" (Francis, 2008). Logically, the more we value something the more risk we are willing to take to attain them, and unfortunately ethical decision making falls to the wayside. Continuing, although the crisis itself is rather complex, the ethical factors surrounding the crisis are far easier to understand. David DeRosa, a Finance Professor at Yale University eloquently stated the "housing problem lies more in reckless unwise decisions on home financing; part of the difficulty arose from poor risk assessment" (Scott, 2008). According to Dane Scott (2008), unwise risk management can be an indication of weakness in moral character. France took part in this poor risk assessment as it bet heavily on housing. France purchases ten of billions of dollars worth of faulty mortgages. These mortgages ultimately turned sour which resulting in the current economic crisis Europe is in. Furthermore, it can be an indicator of traits like pride, indifference, greed and irresponsibility. Pride, in excess, may lead to overestimation of powers, which leads to underestimation of risk. To summarize, unethical decision on the part of the United States and France were partly responsible for the financial crisis because at the time, an investor's short-term, personal gain was worth more than the risk it took to acquire them.

Since 1974, France has utilized a socialist model, which included high cost items such as public sector jobs, social insurance and pensions, has caused them to carry a large deficit. The government has been found to have falsely reported the country's economic status. France is a part of the EU and it is a requirement that any member of the EU not have a deficit greater than 3% of the GDP. Since 1993, the country debt to GDP has been greater than 100%. Since 2000, France's deficit has been greater than the 3% guideline. In 2009, there was a deficit of 15.5% greater than GDP and 10.5% in 2010. With the world economy slowing down, it affected France's 2 main sources of income: shipping and tourism. This means they have a deficit that is only growing as the debt increased and revenues decreased. Partly, due to the economic crisis mentioned above, the government of France is spending more to sustain its already impovished economy. During this same period however, unemployment is reaching high levels which ultimately reduces tax income for the government. Both of these activities work in tandem in creating large amounts of financial deficit for France. Below is a chart depicted deficit numbers for many prominent countries in Europe. Notice how the deficit of France continues to trend upwards. The numbers below are the percentages of debt to GDP. For example in 2010, as a percentage of GDP, France had 67% of it as debt (Organization for Economic Co-operation and Development, 2012).

GDP CHART

Time period

2003

2004

2005

2006

2007

2008

2009

2010

Country

Australia

7.549

6.716

6.312

5.76

5.181

4.922

8.195

10.966

Austria

60.882

62.242

62.116

60.434

57.829

59.319

64.916

65.754

Belgium

95.395

92.763

91.774

87.568

85.295

90.094

94.893

96.789

Canada

35.853

32.109

30.235

27.934

25.183

28.642

35.716

36.073

Chile

13.001

10.684

7.282

5.264

4.097

5.173

6.228

9.185

Czech Republic

As we have seen from the above chart, debt levels are steadily increasing in France. The other half of the equation however is employment. Over the past decade, unemployment in France has increased. This is again due to the economic crisis around the world. Below is a snapshot of the highest unemployment rates among the OECD nations. As you can see from the statistics, France ranks very highly on this table with unemployment at 9.3%. More importantly the trend is actually increasing rather than decreasing in regards to peer nations. Both government debt as a percentage of GDP and unemployment within France are trending upward. As more individuals are unemployed, the government will subsequently collect less tax revenue for the country to spend. This spiral will ultimately create a further deficit unless appropriate action is taken.

UNEMPLOYMENT CHART

Time

2011

2011

2012

Q2-2011

Q3-2011

Q4-2011

Q1-2012

Country

Spain

i

21.6

20.9

21.5

22.9

Ireland

i

14.4

14.4

14.9

14.3

Slovak Republic

i

13.5

13.2

13.1

14

Portugal

i

12.7

12.1

12.4

14

Estonia

12.5

13.3

10.9

11.4

Hungary

i

10.9

10.8

10.7

10.7

Turkey

i

9.8

9.4

9.2

9.1

Poland

i

9.6

9.5

9.3

9.7

France

i

9.3

8.8

9.1

9.7

United States

i

9

8.9

9.1

8.3

8.6

Italy

i

8.4

7.8

7.6

9.6

Slovenia

i

8.2

7.7

7.9

8.7

United Kingdom

i

8.1

7.8

8.4

8.3

Finland

i

7.8

8.8

6.8

6.9

Denmark

i

7.6

7.3

7.5

7.4

Canada

i

7.5

7.5

7.4

6.9

7.8

Sweden

i

7.5

8.2

6.8

6.9

Belgium

i

7.2

6.6

7.8

7.1

Iceland

i

7.1

8.5

5.9

6

Chile

i

7.1

7.2

7.4

6.6

Furthermore, key indicators of economic growth within France are decreasing or remain stagnant. Components such as national savings rates, investment rates, and capital formation rates have all decreased in the last two years. In fact, many of these metrics have yet to eclipse their 2005 levels nearly a decade later. This is a direct result of a stagnant labor market as individuals have less money to spend. With the countries austerity measures, the country and its labor market will be in a further economic bind (Key Indicators of the Labour, 2012).

SAVINGS METRICS

2000

2005

2008

2009

2010

Real GDP growth

3.6801117

1.8265045

-0.0806681

-2.7297852

1.4799614

Gross national income per capita

25673.014

29968.026

34763.851

34253.955

34771.959

Gross and net national income per capita

22689.083

26269.242

30179.896

29569.754

30064.865

Real household disposable income

3.0932375

1.1454798

0.2302596

1.323319

0.8882244

Household net saving rates

11.008073

11.08717

11.705905

12.700807

12.28823

Gross fixed capital formation

6.7780731

4.4064701

0.3120458

-9.0402764

-1.1559786

Elect one particular aspect of this country's labor market (this might be focused on unemployment, education, inequality, immigration, welfare, discrimination or other relevant labor market indicator) and using relevant economic concepts and models present a critical analysis of developments in this area.

To summarize this research, first, individual who are not employed are saving as much as possible in an effort to maintain their current lifestyle, albeit savings rates overall are declining. As a percentage of income, savings rates are increasing in France. Likewise those who are employed are saving more of their income in the event of sudden unemployment. This actually is counterproductive to economic growth, which relies primarily on the purchase of goods and services. As a result of this behavior Gross Domestic Product, a highly coveted measure of economic growth, fell far short of analyst expectations in the first quarter of 2011. This, in my opinion is a direct result of lack of confidence. Individuals are in fear in regards to their own personal finances. Unemployment is high, individuals are saving more, and the future is very unlikely in regards to economic prosperity. This is in turn beyond the control of the current legislation and can not be altered unless a subsequent change in consumer sentiments is enacted.

What policy solutions have been applied in relation to the topic in 2 above? Evaluate these and make relevant proposals for future policy improvements or reforms.

On May 9, 2010, the European Union passed the European Financial Stability Facility, which is a comprehensive rescue package of almost a Trillion dollars. On May 2, 2010, the IMF agreed to a 10 billion Euro loan to Greece provided they implement several "austerity" measures. Most of these measures we in an effort to reduce many of the costs related to the social programs implement in 1974. After several protests, and some deaths, Greece has implemented there "Austerity program" which is geared at increasing taxes, reducing government obligation. At this point, to get the additional portion of the loan from IMF, Greece had to implement the "austerity plan" and is being observed as to economic reporting in the future. The country has some incentive to maintaining the plan as, if they do not, the EU can remove then as a member of the EU. At this point, we will have to wait and see what happens. I believe the same situation will occur… [END OF PREVIEW]

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