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Subsidies that Save

Was France’s recent wave of protests against an amendment that would have increased employers’ freedom to fire young workers a blessing in disguise? To defuse the protests, President Jacques Chirac was forced to withdraw the provision, and instead has proposed hiring subsidies as a way to reduce youth joblessness. A related proposal for targeted wage subsidies is being floated in Germany.

Advocates of greater labor-market flexibility insist that paying employers to hire young people is the wrong approach. Allow employers to fire workers more easily, they argue, and employers will hire them more readily. The limitation of this approach, however, is that a free market for labor will neither eradicate unemployment nor transform marginal, low-end workers into high-productivity, high-wage employees. If the proposed subsidies in France and Germany have a defect, it is not that they are unnecessary, but that they do not go far enough.