Spouses and unemployment duration

When unemployed, some people search more intensely for a new job than others. That will of course depend on their personal circumstances. The urgency of getting some income is obviously more pressing when there is little alternative income, and one such alternative is the spouse.

Stefania Marcassa studies French couples where one spouse works and the other is unemployed. It turns out unemployed men search longer for a job if their spouse earns less, while it is reversed for unemployed women. That turns out to be consistent, in a standard labor search model, with a breadwinner stigma for men. French men do not seems to be able to bear the thought of having a successful wife while being unemployed, while women see no hurry to work if their husband is doing well. Clearly, the sexist ones here are the men.

About fertility declines in wars

A typical war has a large impact on demographics. People die, mostly men. Fewer people are born, because men a missing, both because they are on the battlefield or, as mentioned, dead. At the end of the war, fertility shoots up to catch up for "missed opportunities", and we get baby booms. Well that is the conventional wisdom, and it is not necessarily right. For example, there is some evidence, discussed here before, that the baby boom after World War II was not about the men returning home and catching up on baby making. And one could also challenge the idea that fertility drops during the war because of the absence of men.

Guillaume Vandenbroucke does this for World War I in France. he draws a model of fertility choice where couples factor in that the potential father may die in war. Of course, this reduces fertility, but the question is how much. To get an answer, the model is carefully calibrated to pre-war fertility, mortality and income figures. Then 97% of the drop in fertility is explained by expectations. Of course, this assumes that the French correctly predicted the probability of death. Given that this war lasted much longer than expected and introduced killing technologies of never-seen-before efficacy, I doubt this is a correct assessment of the expectations at the time.

European credit ratings: a case of self-fulfilling expectations

Europe is a mess, and one has to wonder why. First, there is no reason that the credit difficulties of Greece should have any consequences on the Euro. I doubt the US Federal Reserve would feel compelled to do anything if a state were to default on its debt, and nobody would claim it should. Why should it be different in Europe? Because politics want it.

To make things worse, the credit rating agencies generate self-fulfilling expectations. These are of a different kind of those that make that Greece will have to default. Witness yesterday's announcement by Moody's while threatening a downgrade of French debt: "Elevated borrowing costs persisting for an extended period would amplify the fiscal challenges the French government faces amid a deteriorating growth outlook, with negative credit implications." In other words, high credit costs would lead to a downgrade and this would lead to even higher credit costs, etc. The rating is not about the intrinsic risk of default (what rating agencies are supposed to measure) but about the expectation of where the rating should, as signaled by the cost of credit. And this after Standard and Poor's downgraded the same debt "by error." The rating agencies are clearly not helping at this point.

Family firms are like public employers

Family-owned businesses have good reputation with the public, for reasons that have never been clear to me. Indeed, it is even good marketing to mention that a firm is family-owned. Why? The products are not likely to be better. I suppose such firms are possibly smaller and younger, thus the likelihood of a product to be discontinued is higher. I guess such firms have stronger ties with the community, in case this matters.

Andrea Bassanini, Eve Caroli, Antoine Rebérioux and Thomas Breda find that there is an important distinction between family-owned business and other privately-owned ones. Looking at France, they observe that they pay there workers less, which does not seem like a big advantage in the public eye. However, families tend to offer more job security. This mirrors the public sector that in the end offers the same value as private enterprises, trading off job security and pay. So after all, family-owned are more involved in the community by providing more insurance to workers through job security, like so often the French government does by pursing rather Keynesian policies. I wonder whether this would apply to other countries where the public sector is not necessarily leading with such policies.

Economic education and opinions about free markets

Public opinion about economic policy in France and the United States are very contrasted. In France, free markets are viewed very suspiciously and government intervention is required left and right. In the US, it is about the opposite, the government should stay out of any business and no tax can be justified. I find it very frustrating to talk to people (not economists) from both countries as they seem conditioned to believe steadfastly in their view. In the case of France, I was nice shocked to hear an elected politician claim that social security could easily be fixed by taking the money that "lies" in the banks.

Radu Vranceanu and Jerome Barthelemy try to relate beliefs in economic paradigms and economic education. Through a survey, they asked French Internet users about their knowledge of basic economic principles, their views on pro-market reforms, along with various demographic and education indicators. The survey was linked from a business school's website, so answers come from a population likely to be more interested than average in economic issue, and probably more likely to be open to pro-business reforms than the average French citizen. Still, it is clear that economic literacy is a god predictor of open-mindedness towards free markets. I bet it is just the opposite in the US.

Another French experiment with work hours going bad

The French have a special knack in messing with labor markets. The last spectacular failure was the law that limited almost everyone's workweek to 35 hours in the hope this would spread the total hours to more people, lead to more employment and solve a chronic unemployment problem. Well, it did not and lead to loss of productivity and ridiculed controls. And I doubt many economists were surprised. With the election of Sarkozy, this law was quickly scraped and an equally ridiculous law from the other end of the spectrum was introduced.

Pierre Cahuc and Stéphane Carcillo discuss the French policy of making overtime work tax exempt. One can really question what Sarkozy had in mind with this policy, as the adverse consequences are all too obvious. First what is overtime is easily manipulated, and suddenly many regular hours became overtime hours. Second, if the intend was to increase the total hours of work, it was bound to fail if most of the overtime is coming from workalcoholics who would work no matter what the wage is. This is why you need to tax them instead of subsidizing them. And Cahuc and Carcillo find that indeed total hours hardly changed. So what all this amounted to is a generous lump-sum subsidy to highly-skilled workalcoholics. Great.

Why Greece will never make it: self-fulfilling expectations about social security

Mediterranean countries have many things in common, one of them is an early retirement age. You certainly read about the uproar when the Germans learned that they had to bail out the Greeks who enjoy retirement many years earlier. Now there is much pressure on Greece to lower and delay pensions, but there is tremendous resistance from the street. The same is happening right now in France as well. Yet, initiative to delay retirement in Northern Europe or North America, where retirement age is already higher, do not generate much discussion.

Ryo Arawatari and Tetsuo Ono may have an explanation for this dichotomy: self-fulfilling expectations. The story is very intuitive. If you expect pensions to be generous, there is no point in accumulating savings for retirement, and you do not invest in education either. And once you are low skill, you will vote for generous pensions. The opposite happens with expectations of small pensions. And once you are in such an equilibrium, it is very very difficult to get out of it: people want generous pensions, and the newcomers know this and thus expect this not to change, and make the appropriate (non)investments. To change this, you need to massively lower expectations during a whole generation or more. No Greek government can have that much staying power. And neither does the French one.