Delors' Grab-Bag of Solutions for Europe's Unemployment

TODAY, the European Commission formally presents its plan to address Europe's most intractable economic problem: unemployment.

Western Europe's jobless problem is two-fold. It is especially acute today, because the continent is mired in its worst recession in decades. But the problem may not go away when good times return. The European Community (EC) is struggling with a long-term inability to create enough new jobs.

For five of the past 13 years, the EC has lost jobs. Even when it gained jobs during the mid-1980s, the gains were below those of the United States. This weak job growth has led to a rising trend in unemployment.

The trend is particularly clear in countries such as France, Spain, Italy, and Belgium. Since 1973, each recession has pushed the jobless rate to new heights. When good times returned, the unemployment rate did not fall to previous lows. Thus, in stair-step fashion, western Europe's unemployment is getting worse.

The initial boom after Germany's unification delayed its rise in unemployment. But it, too, is stair-stepping its way to bigger problems. The consensus forecast among economic research institutes here is that the jobless rate will reach 8.5 percent next year. In other countries, the situation is worse. French unemployment is nearing 12 percent. Some economists say the EC will peak at 11.5 percent by mid-1995.

``It's certainly an unprecedented adjustment as far as the postwar period is concerned,'' says Nigel Gault, chief European economist at DRI/McGraw Hill. ``We've observed over the last 30 years in Europe that every cyclical peak in unemployment has been higher than the last one.''

Solutions to the problem vary.

Jacques Delors, president of the European Commission, hopes to create 15 million new jobs with a huge public-spending program. His plan would:

* Spend up to $137 billion over the next six years on telecommunications, energy, transportation, and environmental protection programs. Nearly two-thirds of that money is already allocated under various European initiatives, but Delors hopes to better coordinate the programs to maximize results.

* Reduce employers' costs of hiring. Measures include cutting taxes on employers and reducing regulations that discourage job growth.

* Boost worker training.

* Expand job opportunities in environmental industries, tourism, and the arts.

Such measures will be difficult to pass while many nations in the EC are still in recession. When the Delors plan was presented to a meeting of finance ministers on Dec. 5, the German and British ministers criticized the proposed additional spending. A spokesman for Delors says getting the plan approved will be difficult, but adds: ``I have no reason to be pessimistic.'' The plan is the main item on the agenda at the EC summit today and tomorrow.

While the plan does not offer new solutions to a problem that, in one way or another, affects all the developed world, everyone can find something they like in the plan. German economists like the emphasis on worker training - something at which Germany has excelled. Conservative economists, particularly in the US, stress the need to reduce European employer costs and labor rigidities. Europeans to the left of the spectrum embrace the idea of reducing employee hours.

``Yes, in the United States you have created far more employment than we have,'' concedes Andrew Chapman, acting head of the employment policy unit for the EC's Commission. ``What has happened in Europe is that, while we have not created any new jobs, our productivity has gone up.... We are arguing that the answer is to have real wage increases lower than the expansion of productivity.''

In other words, Europe can grow its way out of unemployment by raising productivity. One option, Mr. Chapman argues, is to encourage employers to reduce the work week, thus ``sharing'' the unemployment. Nations such as Germany have seen productivity jump when it legally reduced the work week to below 40 hours.

But productivity growth is a tricky concept to rely on. For reasons economists do not fully understand, productivity growth slowed after 1973 in all developed countries, regardless of their labor policies. And even proponents of work-sharing admit that the link between productivity and shorter working hours is largely unstudied.

In a book published earlier this year by the Brookings Institution, Katharine Abraham and Susan Houseman argue that some of Germany's employment practices, such as partial unemployment benefits to employees on a shortened work week and government incentives for worker training, have actually helped mitigate unemployment and should be adopted in the US.

Most US economists, however, argue that Europeans' generous unemployment benefits and labor protections have created a labor market that is just too rigid.

``I think they're doing it all wrong,'' says Audrey Freedman, a labor economist in New York. ``They're not allowing enough flexibility for their businesses to get up and go.''