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Policy Hub: Macroblog provides concise commentary and analysis on economic topics including monetary policy, macroeconomic developments, inflation, labor economics, and financial issues for a broad audience.

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May 7, 2007

On Cake, And Eating It Too

In case, you haven't been paying attention to the French elections, the Guardian Unlimited has the index-card version of new president Nicolas Sarkozy's policy agenda.  The "European model" is out...

"'It will never be possible to stress enough the evil that the 35-hour week has done to our country. How can we retain this mad idea that by working less, we will produce more wealth and create jobs?"

... and tax cuts are in:

"We've got the highest taxes in Europe. France's problem is we're paying too much tax."

The cause for Turkish membership in EU wasn't much helped ...

"I want an integrated Europe, in other words, a Europe that has borders ... Turkey is in Asia Minor."

... and immigration control is front and center:

"Who can't see that there's a clear link between the uncontrolled immigration of 30 or 40 years and the social explosion on our housing estates?"

The immigration issue is a complicated one, and I have no business commenting a sovereign nation's assessment of how to best deal with the social consequences of open borders.  But this story, from the Wall Street Journal (page A2 in the print edition), provides an interesting juxtaposition:

The quality of life for some 80 million graying baby boomers in the U.S. may depend in large part on the fortunes of another high-profile demographic group: millions of mostly Hispanic immigrants and their children.

With a major part of the nation's population entering its retirement years and birth rates falling domestically, the shortfall in the work force will be filled by immigrants and their offspring, experts say. How that group fares economically in the years ahead could have a big impact on everything from the kind of medical services baby boomers receive to the prices they can get for their homes.

The article does not make a French connection, but one is not hard to conjure up.  A few years back, a Rand Corporation study had this to say:

The history of French population change is atypical; secular fertility decline began one century before the rest of the West. As a consequence, France had the oldest population in the world over the entire period of 1850–1950. The baby boom after the Second World War created a temporary increase in the number of births, but thereafter the fertility decline resumed. With current below-replacement fertility and increased life expectancy, population ageing is expected to reach new heights...

Family policies in France are a complicated mix, as the Rand article makes clear, and recent efforts at promoting fertility among native French citizens appear to have met with some success.  But this bottom line judgment, from the UN, remains relevant:

In most developed countries, the decline in fertility and the increase in longevity has raised three concerns for the future: the decrease in the supply of labor, the socioeconomic implications of population aging, and the long term prospect of population decline and demise...

On the medium run, the next ten years or so, the labor market is the main focus of concern. The reference system comprises here the set of supply and demand variables that determine the employment equilibrium. The impact of fertility and mortality changes is for that purpose at this time horizon very limited. Conversely, international migration could play a decisive role, as well as other socioeconomic variables.

For the long run, - from 2020 to the population projections horizon 2040-2050- structural imbalances of the age distributions are things to worry about.

The Financial Times reports:

Economists had predicted that investors would greet Mr Sarkozy’s election with enthusiasm, in anticipation of tax cuts, labour reform and debt-reduction measures.

In the long run, that last goal will require that immigration reforms be chosen wisely.