Increasing productivity through labour cut-backs in the major Oecd countries : study of the consequences using the Atlas model, by Dominique Bureau, François Cellier, Didier Miqueu.
Seeking to improve productivity appears to be an increasingly frequent aim of economic policymakers and also a long term means of increasing employment by improving competitivity. Different simulations were carried out using the Atlas model, on the one hand to quantify these mechanisms when one country attempts on its own to increase its productivity, and on the other hand to study the results when several countries at once attempt to increase their productivity in this way, mutually neutralizing their efforts.
The increase in productivity is obtained in this simulation by reducing manpower in a given year. So we have to analyse the macroeconomic effects of a supply policy rather than one of improving productivity by stimulating demand, the "supply side" also being characterized by the important role played in investment dynamics by reconstitution of profits.
When a single country reduces its workforce by 1 %, inflation in that country goes down in the short term by 0.5% on average in the first year and 1.3% the third year. Its competitivity improves, pushing its exports up by some 0.6% after 3 years Its gross domestic product, however, shrinks at first, by 0.4% on average in the first year, because of the fall in income catrsed by the staff lay-offs. Then the gross domestic product recovers and just about overtakes its base value after three years. In the long term, countries develop differently according to whether the initial productivity supplement is wholly or only partially reflected in wages. In the first case, prices and productivity more or less even out at their initial levels In the second case, they differ from base levels, with gross domestic product gaining about 0.5% on average after seven years. Be that as it may, employment remains below the base level by 0.6% on average in the seventh year.
When all countries simultaneously follow a productivity policy in search of increased competitivity, production is depressed in the short term, the gross domestic product of the Oecd zone falling off by 0.7% in the first year and only regaining its initial level after three years. But it is worth noting that in the long term the gross domestic product of the zone rises some 0.5% above its initial level, which is comparable to the average figure for any single country trying to increase its competitivity by reducing its labour force. Since the increase in competitivity is usually zero when all countries take action together, this increase in production and rncome can only be explained by the international market forces boosting disinflation. The drop in consumer prices in the Oecd stands at 0.60% the first year, 1.7% the third year and 2.4% after seven years.
In this simulation of productivity policy the Oecd also benefits from a 0.5% improvement in volume of its net exports, setting off a similar decrease in its terms of trade reflecting the fact that the prices of petroleum and raw materials are considered to remain constant whilst the prices of manufactured goods go down. A change of hypothesis on this point, loss-adjusting the prices of raw materials for example, would not change the actual pattern of long term development of production but only the weighting of its determinants.
In conclusion, whereas one might have expected a policy of productivity through labour cut-backs to be effective only when carried out by one single country, it would seem that when several countries simultaneously practice such a policy the long term results are the same because of disinflation, even if the advantages of relative competitivity are lost. Hence there is no significant loss of efficiency, but these policies are not necessarily efficient, since the new jobs they create in the long run are not sufficient to provide work for all those who were laid off at the outset. Of the 1% of jobs lost in the first year 0.6% will still not have been replaced by new jobs seven. years later.
Trade between France and the United States, by Martine Folly, Pierre Uhel. France still shows a negative trade balance with the United States. The deficit increased up until 1982 and only recovered in 1983, despite the steady rise of the dollar since 1980. At first glance the preponderant influence of the reversal of the cyclic differential between the two nations seems to explain this trend. An analysis by sectors helps to qualify this judgement. On the whole, sales of French goods to the United States are not backed up by a sufficient investment drive, whereas French purchases of American goods are conditioned by a structural domination. This is true of various raw materials and of high-technology products. The competitive price trend which started in 1980 with the appreciation of the dollar has very little effect on this type of goods. It did. however, cause French sales to improve as early as 1981 in areas of French specialization in the American market or in areas of high price elasticity. Furthermore, French industry's efforts to adapt its structures can be felt in Franco-American trading figures. In 1983 and 1984 there is an effect of synergy between these different factors. It therefore appears that the up-turn in France's trade with the United States is not merely a result of the general economic climate and that a reduction of France's structural trade deficit can be expacted.