Change of view on work hints hope for Europe's unemployment

Wouter van Ginneken sees ``an enormous change in the mentality in Europe'' in regard to work. Employees (as well as employers) are increasingly recognizing a need to keep labor costs (wages) from rising faster than productivity, says the International Labor Organization economist. Trade unions have been losing influence and power. Their basic blue-collar constituency has been eroding with the decline of old industries, such as steel, chemicals, and shipbuilding. Employers have more power and are winning a little more flexibility from their workers.

In other words, there is a growing economic realism in Europe. The key to this shift has been the threat of unemployment.

Morgan Guaranty Trust Company comments: ``European unemployment has to be rated a major dislocation in the world economy today. Its stubborn persistence and sheer high level are just as troubling as the much debated issues of LDC [less-developed-country] debt and the US budget and trade deficits.''

Unemployment ranges from 9 to 13 percent in the four major European countries. It exceeds 20 percent in some of the smaller nations (see table).

European businessmen are enjoying a solid economic recovery, greater productivity, and rising profits. But the politicians are concerned over their seeming inability to trim the number of jobless without stirring up inflation once more or boosting government deficits.

In Brussels, officials of the European Community wonder if high unemployment among the young will boost violence and crime. More than 4.7 million of the roughly 12 million unemployed in the 10 Community countries are under age 25.

In both France and West Germany, newspapers are commenting on the growth in poverty -- fairly unusual in these nations, with their generous social welfare systems. In Germany, for instance, unemployment benefits drop from 68 to 58 percent of the claimant's last take-home pay after 12 months. This 58 percent is subject to the claimant's undergoing a means test, with earnings of other immediate members of the family taken into account. Since more and more workers have been unemployed for more than a year, incomes are being pinched.

Most economists offer similar reasons for the stubbornness of unemployment:

The recovery has not been so fast as in the United States.

Despite the removal of tariffs between most nations of Western Europe, the markets for many products, such as that for telecommunications, remain divided by national protectionist measures of some sort. ``There is still a long way to go to reach the goal'' of a genuine common market, noted Herbert Wolf, an economist with Commerzbank in Frankfurt, West Germany.

Morgan Guaranty, in its latest issue of World Financial Markets, says a rewrite of the Treaty of Rome, which established the European Community, may be overdue. ``Europe urgently requires a new economic and social program to revitalize its economy, create jobs, and enable it to participate fully in the postindustrial revolution.''

A true common market, the bank says, should extend to services and high technology. Subsidies to agriculture and other uncompetitive sectors should be ``scaled back.''

The labor market is harmed by what these economists call ``structural rigidities.'' It is, for instance, so difficult to lay off a worker when business slumps that most employers are reluctant to hire new employees when demand picks up. Also, because wages have continued to rise in non-inflated terms, it is often less expensive to install new, more productive machinery than to use more workers.

Mr. Wolf notes that European businessmen look with envy at the United States, where management of some companies in weak industries has been actually able to reduce wages to make the companies competitive.

``Employees are too expensive,'' he says. ``Thus employers look for automation.''

Moreover, he notes, wage levels are about the same all over West Germany. In the US, they vary from region to region, again giving management more flexibility in its efforts to be competitive.

``Policies that promote labor market adjustment and redirection into sunrise industries will provide a rich bonus of jobs and economic growth,'' Morgan Guaranty comments. ``With a conducive environment for investment at home, the outflow of capital from Europe to the United States should slow and the dollar might give up some of its super strength.''

Commerzbank's Wolf sees new realism among young Europeans, compared with 10 or 15 years ago. The 1968-75 generation thought it didn't need industry -- only a good life style -- he recalls. Today's youths work harder at school and are more ambitious on the job.

``The whole population has become more reasonable,'' he says. There is even a conservative trend in the universities. ``It is no longer the fashion that all intellectual people have to be left wing.''

Europeans have been experimenting with various solutions to the unemployment problems. For example, Germany's metalworking union struck for shorter hours, hoping to spread out work to more employees. The resulting shorter workweek has apparently made little difference yet. France's Socialist government legislated a reduction in the standard workweek by one hour, to 39 hours. But it hasn't gone further because of the implication for higher labor costs and reduced competitiveness.

Big banks and governments have encouraged the growth of venture capital to stimulate development of small, high-tech firms regarded as the wave of the future.

But, says Wolf, there is not much demand for the capital. Most Europeans still prefer the relative safety of working for big companies rather than launching out on their own. ``We cannot expect such a movement as you have in Silicon Valley,'' Wolf says. ``Most technological research is done in bigger companies.''

At the same time, he does notice a growth in entrepreneurship in service activities -- a boom in antiques dealers in Frankfurt, foreigners starting up restaurants, young women opening boutiques, etc. These new enterprises, of course, provide jobs.

Morgan Guaranty says that the dominance of large ``national champion'' companies makes more it difficult for Europe to take advantage of the explosion of high-tech products. ``Europe offers a discouraging climate for small entrepreneurs,'' the bank maintains.

Europe's population structure adds to its job problem. In the US, labor force growth has decelerated, but not in Europe. More women are starting to work, too.

The shift in attitudes in Europe is such that legislators and businessmen are considering or making changes that could add to the flexibility of labor and the attraction of entrepreneurship. In turn, these changes could stimulate more jobs. But European economists expect no swift reduction in the number of the unemployed. One chart: European unemployment

1979 1984* Western Europe 5.1% 11.8% West Germany 3.8 9.2 France 5.9 9.7 Britain 5.1 12.7 Italy 7.7 10.5 Belgium 7.1 12.3 Denmark 6.1 10.6 Ireland 9.3 23.0 Netherlands 5.1 17.8 Spain 9.2 20.1 Sweden 2.1 3.1 *Average, January through latest available date. Source: Morgan Guaranty Trust Company