Examine the following Wed., March 29, 2006  WSJ article
“Labor Law Ignites French Anxiety” pages A1 and A8:

    France’s most famous period of violent protests in 1968 saw students rioting against what they saw as a rigid and smothering state.  Today, it seems, they want the state back.  Serge July, director of France’s main left-of-center newspaper, Liberation, and a ’68 veteran, says his country is gripped by “anguish about the future.”  It is also suffering from, he says, a “crisis of identity.”
    According to a recent poll, France is the only country among 20 surveyed where those who didn’t have faith in the free market outnumber those who do.  Only 36% of those polled in France agreed with the proposition that the free market is the “best system on which to base the future of the world” – compared with 71% in the U.S., 66% in Britain and 65% in Germany.  In nominally communist China, 74% said they favored the free market, according to the University of Maryland’s Program on International Policy Attitudes.
    Police put the number of protestors yesterday across France at 1.05 million, more than twice as many as the previous biggest protest on march 16.    Trade unions, which organized the rallies, put the figure at three million.  A one-day strike to coincide with the protest disrupted hospitals, schools, rail services and air traffic, halted delivery of newspapers, dented production at France’s biggest oil refinery and shut down the Eiffel Tower.
…  students and anti-globalization activists took down a statue of Jean Jares, a former socialist leader, saying they wanted to mourn the rise of capitalism.”

So what’s the brew-ha-ha all about?

According to the new law, a student’s “first job contract, ” known by its French acronym CPE, will lower unemployment, which stands at 9.6% for the population as a whole, and around 23% for young people.  It allows employers to fire workers under the age of 26 without explanation during a two-year period of probation.  The CPE would replace a complicated system that makes it hard to dismiss workers without big payoffs or expensive legal battles.”
  

Analysis (and criticisms of neo-classical theory):

- Employment in one’s first job in France is not governed by economic theory.  In France, one is protected from being fired in one’s first job by expensive lawsuits and big payoffs.  (This is good for workers, but bad for businessmen.)  Protected marketplaces in labor markets are not supposed to exist in neoclassical theory.

- Students are not acting irrationally in protesting the new law.  Businessmen are not irrational in upholding the new law.  Such behavior is consistent with  neoclassical theory. 

- However, students are acting out as a group, rather than as individuals.  And businessmen are seeing their interests protected, as a group, rather than as individuals.  (This conflicts with neoclassical meta-assumptions.)

- Interestingly, the data in the article suggest a degree of non-uniformity among countries regarding use of free market economic principles.  Even China purports to support the free market more than the French, the U.S., the Germans, etc.  (This conflicts with neoclassical meta-assumptions.)  Data gathering introduces dirt into otherwise well-functioning economic models.

- Wages are rarely set by inspecting declining VMP curves, because such curves are often too difficult to measure.  What, for example, governs the wages of economics professors?  Probably, what they can earn at an alternative school.  Said differently, schools may adjust hiring salaries so that professors can be bid away from their existing job positions when necessary.

 - The models I’ve shown you are static models; they lack the quality and the insight that dynamic models might better reveal.  Click dynamic models (or see the next page) for a related example.

 How to Ride a Bicycle (that doesn’t move)
by Using a Static Model

Rule #1:  Without moving the bicycle, sit upright, keeping your weight exactly over the precise center of the bicycle until you can do so without falling over. 

Rule #2:  Practice that often.  You could probably master that skill within a month.

 Question:  Does a static model really teach a child how to ride a bicycle?

What Insights a Dynamic Model of Bicycling Reveals

Suppose you now begin rolling forward on your bicycle.  Everything will work fine, unless you try to turn by moving the handlebars.

 By following Rule #1, when you turn the handlebars, you are now going to fall over.  That’s because centripetal forces were zero when the bicycle was stationary.  Centripetal and centrifugal forces are not zero when a wheel is in motion.

Using a dynamic model, you will find that riding a bicycle requires you to unlearn Rule #1 and Rule #2.

Rule #3 is to practice leaning into the turn.

 

Reflections on Models

Models are things of beauty, and they tell you about how things are supposed to work.  The demand for labor model is a neoclassical static model, and it  may not replicate very well what is happening in the market for baseball players.  Read onward!

Most major league sports athletes live in the USA live in protected cartel-like oligopolies, as the result of court protection.  The teams can legally conspire to arrange teams, games, and players so as to act as a joint monopoly.   They restrict output, boost prices, and police their memberships.  But in baseball, players have attained free agent status.  The article considers their wages, and what teams are doing about it:

Excerpts from the article:

"It's a dilemma that executives in all industries face:  how much to rely on a star system vs. a team-approach.  In baseball,  because there are more cogs in the wheel than in some other sports, having a couple of stars doesn't always get a team very far in the standings.  There is a growing feeling among owners that if they have to choose between a lineup that has a few stars surrounded by minimum-wage players and a team full of guys in the middle of the salary pack, the latter has a better chance of success on the ball field.  Some owners also believe that more balance in the payroll leads to better chemistry among the players.

... The interest in more evenly spread payrolls comes as many teams in recent years have had trouble keeping a lid on salaries, largely because of the bustling market for free-agent superstars. ...

Major league baseball payrolls range from less than 20 million for this year's  Florida Marlins to more than $200 million for the Yankees.  ...  baseball doesn't have a cap on salaries, as the National Football League and National Basketball Association do.

Some teams with inequitable payrolls are increasingly finding themselves handcuffed  by that imbalance."

Salary Statistics on a few megastars in  baseball:
"-  Ted Helton - Colorado Rockies $16.6 million; 42% of team total
-  Mike Sweeney - Kansas City Royals $11 million; 22% of team total
-  Barry Bonds - San Francisco Giants $18 million; 21% of team total
-  Clipper Jones - Atlanta Braves $15 million; 18% of team total"

Baseball does seem to reward the most productive players with higher salaries.  That would seem consistent with neoclassical theory.  But no one really agrees with how you measure that productivity.  Is it how many fans you bring to the ball park?  Is it how many wins a team accumulates in a season?  Or is it  some measure of team chemistry that coaches should be trying to reward and recruit?

In any case, the owners are seeking to reign in the exorbitant differences between salaries, which is consistent with serving their own self interest, and is inconsistent with rewarding according to strictly construed value of marginal product.

Baseball could get itself into financial trouble if the best  paid players go to a single highest bidding team.  Other teams would wind up losing to a persistent highly-paid winning team, and that could draw down attendance and interest in the sport across the country.  In this sense, abiding by the value of marginal product theory of wages could destroy the game of baseball.  It is for that very reason that American courts have permitted the sporting industries in America to collude, and engage in financial practices not permitted in other industries.

Note that the article mentions that professional football and basketball do not play by the free agent game in which players are paid according to their value of marginal product.