The Real Reason For France’s Pension Protests | Economics Explained

this is France the second largesteconomy in Mainland Europe and aregional center of Finance manufacturingand highly evaluating Industries likehigh and tourism fashion nuclear energyand education France is home to 31 ofthe world's biggest 500 companies andthey're all in industries that operatearound the globe to bring foreign incomeback to the country France has a lotgoing for it and that's why it's one ofthe oldest advanced economies in theworld having effectively been one of thefirst countries to start the IndustrialRevolution but for all of its successesyou wouldn't realize it if you'retransported to its capital city streetswhich are now overflowing with unclickedgarbage lined with police and surroundedby boarded up shops that have had toclose down civil unrest started inJanuary to demonstrate opposition to abill that increased the age a Frenchcitizen could retire from 62 to 64. thedemonstrations eventually turned intostrikes involving a broad range ofworkers including energy grid operatorsteachers public transport drivers DockWorkers and garbage collection Personnelthese essential workers striking haseffectively ground and the Frencheconomy to a halt as a lot of itsessential Industries even the ones thatdon't directly employ the peopledemonstrating can't operate withoutthese public functions in place theaverage tourist isn't going to want tovisit Paris when they are readingreports about violent demonstrationstear gas and all the attractions thatthey wanted to see being shut down thesedemonstrations whether you agree withthem or not are ultimately just a veryvisible result of an interesting debateover an economic problem that allcountries are going to have to come upwith an answer to in the next fewdecades unfortunately for France thisdebate has been had very passionately ata time when the economy can least affordit national debt to GDP is approaching ahundred percent which while not out ofthe ordinary for advanced economies likeFrance will still be a major burden ontheir economy as interest rates riseespecially if the problems disrupt theirhistoric sources of foreign income sowhat is the economic argument for andagainst these demonstrations what welearned from France's problems thatrelate to our own economies and finallydoes this have the potential to kick offanother Eurozone crisis after we've doneall of that we can put France on theeconomics explained National leaderboardthis episode of Economics explained wasbrought to you by public.com public hasbeen a long-term sponsor of this Channeland I'm proud to be able to work withthem because their platform makesinvesting as easy as possible foranybody to get started public justlaunched treasury accounts a new way foryou to access U.S treasuries directly onyour phone unlike a traditional savingsor high yield savings account the yieldthat you get with treasury bills is afixed rate so the rate that you get atthe time of purchase won't fluctuate youalso don't need to deal with thecomplications of buying U.S treasurieseither from a bank or navigating througha government website that looks like itwas designed in 1996. public also has afeature that lets you automaticallyreinvest your treasury bills at maturityso that you don't have to do anything toremain invested in t-bills hassle-freetheir platform is simple to use fullyregulated and sipc insured they alsodon't accept payment for order flowwhich is how other commission freebrokerages make their money by sellingyour trade data or redirecting yourorders through third parties go topublic.com EE to start getting a yieldon your cash backed by the US governmentor by following the link in the videodescription belowat its core these demonstrations areabout different solutions to theeconomic problem of worker productivityfor any economy to function it needs thefactors of production land capital andlabor it's possible that in the futuredevelopments in Automation andartificial intelligence willcomprehensively replace the role ofpeople in all parts of the economy butit's not likely to happen as quickly asmost people think robots and AI programslike chat GPT are just part of whateconomists call capital and capital isanything that helps people produce morestuff a worker's tools a capital ashipping Port is capital and evenpeople's homes by some Economistdefinitions would be Capital becausethey give workers a place to rest andget ready to produce more stuff even themost impressive things that AI can do atthe moment is only a small part ofeverything that needs to be done in awell-functioning economy an AI might beable to design a house that looks nicebut it still needs humans to doeverything else including double checkits work actually building the house andinstructing the AI to design the housebased on a set of instructions that ahuman provides in the first place oneday all of these may just happenautomatically but until then artificialintelligence is just a tool thatleverages the work of humans to makemore stuff no different from a hammer orany other piece of capital France hasstruggled to adopt technicalinfrastructure into their highlytechnical Industries and have reliedmore on labor than Capital when comparedto other economies in the regionparticularly Germany that is a problemfor France because their population isgetting older and spending more time inretirement putting a greater burden onyounger workers this happens eitherdirectly through higher taxes that needto be paid by those that are stillworking to provide public services tothose that are too old or indirectly byunproductive members of society stillconsuming an economy's resources butproviding nothing in return as peoplelive longer on average they will spend agreater portion of their lives being neteconomic burdens than net economicproviders and I know it sounds terribleto refer to someone's existence as aburden but sometimes economists can be alittle bit heartless for the sake ofaggregate Simplicity now we haveexplored similar problems to this injust a the past few months with ourvideos on South Korea and the economicimpacts of brain drain but France is alittle bit different because it actuallyhas a very healthy birth rate of 1.81children per woman on average whichmeans it's almost sustaining itspopulation even before immigration whichalso has a lot of compare this to SouthKorea which only has a birth rate of0.84 children per woman on average andhas much lower levels of youngimmigrants moving into the country toreplace people as they get too old towork South Korea and a lot of othercountries even in Europe for that matterhave less young people entering theirWorkforce to replace all people so theissue of Aging populations is moreserious there than it is in France atleast on a macroeconomic level butdespite the relatively comfortableposition they find themselves in theFrench government has taken emergencyaction to push through retirementreforms that are clearly wildlyunpopular with a large part of theFrench public while making this video wewere lucky enough to consult directlywith tamash Makowski an economicsprofessor from HEC Paris who not onlyoffered insights into the French economybut also the experience of a Frenchprofessional living and working in Paristhere is no sense of urgency for thispension reform even now among thegovernment thattried to push it Forward everybody knewthe system for a couple of more years ismore or less in balance at the end ofthe day we will need to have an increasein the retirement age some majoradjustments it doesn't have to be nowright that that's uh that's a differentstory and that's why also the rioters orlabor unions that protest they know thisthis is not something that if we don'treform today we're staring down thehabits right it's not or we have adefault or you know a drastic adjustmentof uhpensions now or even you know five yearsfrom now that's not the case and that'salso one of the problems why theprotests are So Vain and because theyknowit's not really a necessity somepolitical commentators are evensuggesting that this could cost theFrench government re-election whichmeans that this is not a decision andthey would have made lightly so why isthis so important for Francefor starters controlling the workingpopulation is an important issue for allcountries especially advanced economieswith low birth rates it's not even justwhen people exit the workforce that isbecoming a problem more and more peopleare entering the workforce later in lifebecause they are spending longer atschool and University before gettingtheir first full-time job higher levelsof Education normally make workers moreproductive because their educationshould allow them to leverage otherfactors of production to produce morevalue for a given hour of work ifsomeone goes to University to become anengineer they might design an automatedship loading and unloading machine thatproduces more economic value overallthan someone who just gets a job as adock worker of course this is a veryoversimplified example but it displays afundamental rule of Economics which isthat to achieve economic growth longterm a nation needs more land morecapital or more labor all the land onEarth is pretty much accounted for thesedays and as Russia is currently findingout taking new territory by force isdifficult and economically damaging thatleaves the options for economic growthexclusively with improving labor andcapital having more Capital can eithermean investing in more machinery andtools and technology or developingbetter stuff a farmer with astate-of-the-art combine harvester canproduce a lot more food than a farmerwith a horse-drawn plow improving labormeans getting more people to workgetting them to work harder or gettingthem to work for longer this means thatdeveloping technology is normally thebest long-term solution to improvingoverall living conditions because it'sno good achieving economic growth andprosperity and having a fantastic GDPnumber if it's only achieved byeverybody in the country workingthemselves to death again on amacroeconomic level at least this stilllooks very good for fans surprisinglythe country actually has a higher laborforce participation rate than even theWorkaholics in the USA 73 of Frenchresidents between the ages of 15 and 65work where only 63 percent of U.Sresidents do France despite itsreputation for having blazy workersactually has one of the highest laborforce participation rates of anyadvanced economy in the world so if allthe macroeconomic metrics are looking sogood for France then why is it the firstdeveloped count country that is havingsuch visible reactions to issues thatother countries have much worse wellit's actually the relative strength oftheir labor force that is letting thishappen the French have very strong workprotections which is why theydemonstrate so much without losing theirjobs a higher rate of French residentswork but they on average work for fewerhours because the country has a cultureof pushing for work-life balance overthe other option of working people ashard as they possibly can to maximizeeconomic output those work protectionsalso extend to long-term benefits likepensions which fund the retirement ofmost French workers these benefitscombined with the flexibility of workingin France explains why such a highpercentage of the country activelyparticipates in the labor market and italso explains why funding pensions isgoing to be such a problem and that'sbecause so many people are going to beeligible for them and they are quitegenerous compared to most othereconomies the French pension systemfalls into three pillars thenon-contributory minimum pension is asmall amount paid to French residentsover the age of 65 who don't have enoughassets or income to support themselvesthe payment for this type of pension isless than a thousand Euro a month and isfunded by the French government thesecond pillar is voluntary privateProvisions where people can save theirown money in tax-free accounts forretirement kind of like superannuationor 401ks in other countries the thirdpillar is the one that is causing theserights and that is the mandatory pensionProvisions which is something that bothemployers and employees are forced tocontribute payroll taxes towards themoney from this scheme is invested andpaid back to workers once they reachretirement age and it aims to giveworkers between 70 and 80 of the incomethey were making during their 25 highestearning working years increasing the ageat which people become eligible forthese pensions not only keeps themcontributing to the economy and payingthe contribution taxes for a little bitlonger but it also reduces the amount oftime the average person will bereceiving those benefits helping to makethe program more sustainable in the longterm as people continue to start workinglater and living longer now this makeseconomic sense but it's also easy to seewhy people are angry this is money thatwas paid by work workers directlythrough their taxes for their entirelives now the government is changing therules about when they can access it soif people are this unhappy about it whatare the alternativesschemes like this can be very clever butthey can't get around the basicmacroeconomic fact that less peoplecontributing to an economy and morepeople being a burden on that economy isgoing to need to be paid for somewhereraising retirement ages is one solutionalthough that one has obviously beenvery unpopular another option is toreduce the amount that these pensionspay out although that's also likely tobe very unpopular as well the governmentcould push more people to utilizevoluntary retirement plans but for a lotof people that are already old it's toolate for them to start now when they'vebeen expecting to receive a pension fortheir entire life the last option is toincrease the payroll taxes paid byworkers and businesses in the economy sothat there is more money going into thesystem to cover a growing number ofpeople that will be dependent on it asmore and more French workers retire thisis what most organized movements havebeen asking for but there is still aneconomic trade-off labor forceparticipation in France is very high butso is unemployment that's because oncepeople find jobs it's very hard to getrid of them because of all of theworkers protections that's great for thepeople people that already have jobs butit can make finding work a lot harderbecause businesses are very carefulabout who they hire because they knowit's very hard to get rid of a bademployee adding the additional expenseof higher payroll taxes will make Frenchworkers even less attractive and becauseFrance is a member of the EU a lot ofbusinesses have the option of easilyhiring someone from another countryFrance also has a problem with braindrain amongst its most productiveworkers who don't really benefit fromworker protections but do get hurt bylabor market rigidities and higher taxesthat are needed to maintain theprotections given to average Frenchworkers a French worker in an in-demandrole can normally earn a lot more bymoving to a neighboring EU country whichnot only denies France their taxes tofund pension schemes but it also deniesthe country their economic productivityit's a difficult problem and there is nosolution that will make everybody happythe study of Economics itself is justtrying to answer the central economicproblem which is that people haveunlimited desires but only limitedresources in which to fulfill thosedesires people would love to spend aslong as they possibly can receiving apension but somewhere in the economicsystem someone has to provide theresources to make that possible thequestion of who pays and who receives isalways going to be up for debate thepeople of France are fortunate in thesense that they are able to participatein that debate so openly unfortunatelythis sea is also happening at a timewhen France can at least afford itFrance's debt burden is becoming aproblem historically it's been able toserve as high levels of debt thanks tothe foreign incumber it receives fromall of its multinational corporationsand the millions of tourists it receivesevery year and now those Industries arein trouble because French exports tendto be luxury items that are moreexpensive than similar goods made inother countries during strong EconomicTimes this is great because the countrycan add significant economic value toits goods and services just by putting amaiden France sticker on things but withall the uncertainty in the globaleconomy consumers are spending Less onluxuries and businesses are investingless into the high-tech equipment thatFrance also produces a lot of people whoare planning their first holiday inyears are also choosing to give France aMiss because the news is filled withimages of garbage piling up in thestreets which is not exactly what peoplewant to see when they're visiting thecity of love despite these challengesmost economists are not particularlyworried about the Fallout of these riotsas much as they are worried about theeconomic problems they represent eventhe mostspectacular closure of the Frencheconomy in 1995when you had three weeks of a total staymade a total closure of the country wasa shutdown that caused the economy 0.2percent of GDPthat's not what's happening nowuh the effects of the strikesuh right or your right would bemuch order of magnitude probably lowerthan that riots are peanuts in fact uhof course except for those who aredirectly affected the shopkeepers therestaurants and then they're really verylocalized brain drain of young workersand the country struggle to properlyImplement technology are going to be amuch larger problem for the Frencheconomy than even prolonged protestsnobody can predict the future least ofall economies but lower foreign incomecombined with higher repayments on adebt burden that is approaching ahundred percent of the country's GDP hasa lot of people concerned that thesecond largest economy in Europe couldtrigger yet another debt crisisokay now it's time to put friends on theeconomics explained National leaderboardstarting with size France is the seventhlargest economy in the world only justfalling behind India that has apopulation more than 20 times largerwith a GDP of 2.9 trillion dollars itgets a 9 out of 10. that figure isspread out over a population of just 67million people which means despite allof its challenges and its reputation forhaving lazy workers it still has one ofthe most productive populations in theworld it has a GDP per capita of 43 659as of 2021 which is slightly behind itsEuropean peers of Germany and the UK butstill makes it well and truly a highincome country so it gets an 8 out of10. stability and confidence is strongFrance is a major long-standingwell-respected democracy with a robustlegal system and well-regulated marketsthe very fact that its people are soquick to protest changes that a lot ofother people from a lot of othercountries would just ignore is a greatexample of a healthy functioningdemocracy heat and while issues likethis may cause economic challenges inthe short term they almost alwaysprovide better economic outcomes in thelong term France gets an 8 out of 10.unfortunately its economic growth hasbeen stagnant over the past decade theEurozone crisis The Fallout from brexitwhich also impacted France as a majortrading partner and transport Channel aswell as covert have all put downwardspressure on France's economic growthsince it didn't really grow at all itgets a 2 out of 10. it would haveactually needed to shrink to getanything lower than this finallyindustry France is a surprisinglyindustrious Nation it builds everythingfrom aircraft and cars to handcraftedluxury fashion pieces it is also a majorservice center tourist destination andInnovation hotspot it's a world leaderin everything from nuclear energy andpharmaceuticals to creams that you rubon your face to look younger France getsan 8 out of 10. altogether that givesFrance an average score of 7.2 out of 10which puts it up here on the economicsexplained National leaderboard ourentire our interview with ThomasMakowski is available on the economicsexplained Spotify page where you canalso find ad-free and audio-onlyversions of all of these videos as wellas interviews we've done with otherworld leading economists thanks forwatching mate byeforeign