NCPA - National Center for Policy Analysis

Need For Reform In France

October 9, 1995

Two problems in France illustrate why fundamental reforms are needed in the country:

  • Although the official unemployment rate is 11.4%, down more than a full percentage point from last year's high, the real unemployment rate is closer to 20%.
  • The French pay-as-you-go social security system is operating at a cash deficit, and according to estimates, the present value of its unfunded liabilities is 98% of France's annual gross domestic product.

To eliminate unfunded social security liabilities, taxes would have to be raised to the point that they would absorb virtually all of the lifetime income of Frenchmen who were lucky enough to find a job.

The only way to salvage the social security system is to follow the lead of Chile, which successfully privatized its system in 1981. That is unlikely to happen in France, where unions are already digging in to shut down France over proposals to privatize France Telecom.

However, President Jacques Chirac and Prime Minister Alain Juppe are not likely to lead reform efforts. For example:

  • Juppe has proposed policies that will actually destroy jobs, including raising the minimum wage, boosting taxes and increasing subsidies to employers who take on workers who have been unemployed for more than a year.
  • Chirac recently announced that he would use a 1945 edict to requisition vacant, privately owned buildings to house the homeless.

Source: Steve H. Hanke, "A Phony Reformer," Forbes, October 9, 1995.


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