After weeks of mass protests, French President Jacques Chirac has caved, scrapping a new law meant to make it easier to fire - and hire - young people. That's a loss for labor flexibility, which France and much of Europe desperately need. It's also a defeat for a wide swath of workers one might call "outsiders."
The pitched battle between students and unions on one side and the French government on the other, has been portrayed as a test of labor security vs. flexibility - a job guaranteed for life vs. a riskier lifetime of employment in several different jobs.
That framework helps in understanding the forces pushing and pulling at an important world economy that's burdened with high unemployment and sluggish growth. But another useful way to look at this is insiders vs. outsiders.
By keeping in place laws that make it very tough to fire anyone, President Chirac is effectively shielding a large group of current job holders, or "insiders," dominated by white, middle-aged males. By virtue of that, he's shutting out potential earners and economy-boosting spenders and innovators - such as youth, women, immigrants, and older workers.
The difference that a closed, rigid labor market makes for these outsider groups is startling. For instance, only 26 percent of French young people (age 15-24) were employed in 2004. In the US, where hire-and-fire-at-will is common, 54 percent had jobs. Only 41 percent of French older people (age 55-64) work; 60 percent of older Americans do. Women fare better, but the gap persists: 57 percent of them work in France; in the US, it's 65 percent.
Such disparities hold across Europe. Countries such as Britain and Denmark, which have opted for open, flexible labor conditions, employ significantly greater percentages of so-called outsiders than countries such as Italy and Germany, which are still protecting their traditional workers.
The 25-member European Union is pushing against this circle-the-wagons practice - especially when it comes to foreign investment. Last week, EU commissioners threatened legal action against many member states for not falling in line with internal EU open-market regulations, and asked France to justify a new law that restricts foreign investment in 11 sectors. France still draws large amounts of foreign capital, but imagine how much better its economy would perform if it didn't have more barriers to foreign investment than any western European country.
In France and elsewhere in Europe, the insider-outsider challenge extends to society in general - a condition that hints at more upheaval unless the balance is corrected. Muslim immigrants, many of whom live in isolated suburbs, are woefully underrepresented in French elite universities and in politics (as are women). Last week, French Interior Minister Nicolas Sarkozy condemned the "opaque decisionmaking process" in France and called for reform to make government more responsive and responsible.
That can't be done by President Chirac's latest plan to simply use government intervention and subsidies to help youths find jobs.
More is needed to break down the walls that now protect insiders.