49's the sticking point for French firms

Quantifying regulatory burden.

A group of LSE economists have published a paper which makes a strong effort to actually work out the damage regulations do to economic efficiency. Luis Garicano, Claire Lelarge, and John Van Reenen hit upon the method of looking to France, where there are sharp increases in the regulatory burden when firms employ 50 or more workers.

Seemingly as a result of those burdens, a noticeable number of firms appear to "stick" at 49 employees even when they may hire that extra marginal person. The piece's key chart is a killer:

Notice how the number of companies with 49 employees is actually higher than the number with 45 – and also that there's a precipitous drop between the number with 49 and the number with 50.

The paper tries to estimate, to a preliminary level, the regulatory cost of this burden. They estimate that 0.05 per cent of firms are distorted, and that the total output lost by those distorted firms is about 35 per cent – meaning that GDP is lowered by 0.5 per cent.

As the New York Times' Casey Mulligan writes, however, we shouldn't confuse the direct cost with the total cost of the regulations:

This is not to say that the regulations imposed on 50-employee companies are necessarily excessive, because they can create public benefits that more than justify their net costs for an employer and his employees, just as taxes and government spending can. For example, an air-pollution regulation might kick in at 50 employees that creates a significant cost for the employer and little aggregate benefit for his employees but creates a significant benefit for the people of France.

The employers also miss another transfer of wealth that might be just as important. Matt Yglesias covered it in another context last week:

One very plausible consequence of this would simply be to strongly discourage the owners of small firms from pursuing growth. And the big winners from that kind of disincentive to firm growth will be the owners of other small firms that simply aren't as lucky or well-managed as the growing ones.

In other words, it's a transfer of wealth from a company which may expand by a few employees to the companies which aren't going to have their lunch eating by a growing competitor. In the French context at least, that transfer will be relatively small. While companies are disinclined to grow from 49 to 50 employees, they may well be happy to leapfrog from 49 to 51 or higher; and the impact on creation of massive companies will be small indeed. But it will have an impact.

Fundamentally, it's an example of why it's best, where-ever possible, to target margins rather than absolutes. In taxation, for example, there's rarely this sort of adverse incentive, because there are few margins where earning more affects the taxes you pay on money already earned (where that does happen – between £100,000 and £150,000 of income, for instance – it is still carefully planned so that there is a positive value for every extra pound earned).

The problem is that that's harder to do for regulation. You can't really tell a company that they have to provide health insurance for the 50th employee but not the first 49, for instance. It would be unfair, not to mention probably even more impractical.

Better answers may be to more gradually phase in the burdens, so that at no point is there a leap in regulation big enough to dissuade too many companies from expanding; to stop fetishising small businesses, and make them subject to the same regulations as every other company (which would also force regulations to be easy to comply with, of course); or to make such regulations more explicitly support entrepreneurship rather than merely being small by imposing them a set period after a company has been founded, rather than basing them on growth.

More research, please!

An employer works on pullover sleeves for one of the luxury French brands who outsource work to these small specialist artisan factories on December 10, 2009 in Port-Brillet. Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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Labour MPs believe Jeremy Corbyn is incapable of tackling anti-Semitism

The leader's insistence that "there's no crisis" has led more to conclude that he must be removed.  

In a competitive field, yesterday was the most surreal - and shameful - day for Labour since Jeremy Corbyn became leader. After a telling delay, Corbyn arrived at the only response that was acceptable to MPs: the suspension of Ken Livingstone. The former mayor of London, who appears incapable of entering a studio without triggering outrage, surpassed himself by claiming Hitler supported Zionism (as if to invalidate the latter). In time-honoured fashion, he then responded to criticism by pouring petrol on the fire. In remarks that caused journalists to question their hearing, Livingstone opined that "a real anti-Semite doesn't just hate the Jews in Israel". 

Two hours later, one of Corbyn's greatest allies was finally suspended (the day after Naz Shah MP had been). But the announcement itself added new offence. The email confirming Livingstone's suspension simultaneously revealed that John Mann MP, who had denounced the former mayor as a "Nazi apologist", had been summoned by the chief whip to "discuss his conduct" - as if their behaviour was somehow comparable. Labour sources later told me that Corbyn's office had wanted to go further and suspend Mann - a demand flatly rejected by the whips. Their resistance has revived the desire among some of the leader's allies for a cull in a future reshuffle. 

But it was Corbyn's conduct in a BBC interview that truly provoked MPs' fury. "It's not a crisis, there's no crisis," he declared, unwittingly echoing the Sun's headline on Jim Callaghan during the Winter of Discontent ("Crisis? What crisis?"). It was as if Hitlergate had never happened. Corbyn added that "the party membership is the biggest it has been in my lifetime" (it was actually higher in 1997) and that "much of this criticism that you are saying about a crisis in the party actually comes from those who are nervous of the strength of the Labour Party at local level". MPs, he appeared to suggest, were not motivated by a desire to repel Labour's anti-Semitic infection but by fear of the party's left-wing membership.

Livingstone's suspension was "very sad", Corbyn said, but "there is a responsibility to lead the party". The abiding impression was that he had suspended his old comrade with the utmost reluctance - it was the burden of office that had forced him to do so. Finally, Corbyn declared, as he always does on these too-frequent occasions, "we are not tolerating anti-Semitism in any way or indeed any other kind of racism." Labour's leader appears congenitally incapable of condemning Jew-hatred in insolation. The explanation, some MPs say, is that he subscribes to a "hierarchy of racism" under which anti-Semitism is a lesser offence than, say, Islamophobia. In rejecting a systematic focus on the former, Corbyn's critics say he is in denial about the scale and significance of the infestation.  

His apathy has intensified the desire of his opponents to remove him before the year is out. "The soft left moved massively today," one MP told me in reference to Labour's internal swing voters. Another said: "It does two things: it firmly pins responsibility for next week's results on the hard-left antics [Labour is forecast to become the first opposition since 1985 to lose council seats in a non-general election year] and it weakens the willingness of the 'core group' servers to keep mopping up after Corbyn because they are increasingly mortified by the association". But others disagreed: "It's strangely less likely," one said of the prospect of a challenge, "the mood is 'keep giving him the rope'". Another said that Labour MPs, traditionally sentimental towards their leaders, lacked the "constitution" for the struggle. "They can always find an excuse why now isn't the right time," he lamented. Without an agreed candidate, and without even agreement on whether there should be a challenge, Corbyn's opponents fear that "even worse is to come". 

George Eaton is political editor of the New Statesman.