US Downplays Expectations About Outcome Of G-7 Nations' Jobs Meeting

DIVISIONS WIDEN

By , Staff writer of The Christian Science Monitor

WHEN President Clinton originally proposed a ``jobs conference'' of the world's wealthiest countries, he wanted to lead them in countering a common threat: unemployment.

Today labor, finance, and economic ministers from the Group of Seven (G-7) countries will meet in Detroit in response to Mr. Clinton's invitation, issued in Tokyo last July.

Since then the differences among G-7 members' economies have sharpened:

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* The United States economic recovery has renewed US confidence in the capacity to create jobs, although major problems persist, such as low wages, education and training deficiencies, and underemployment.

* Continental Europe struggles to emerge from a slump, long-term unemployment is widespread, and governments are groaning under the increasing weight of the social welfare expenditures that European citizens have come to expect.

* Japan is still mired in recession and its system of lifetime employment may be uprooted. But its 2.5 percent jobless rate is significantly lower than that of its G-7 partners, and it continues to exercise its ability to fuel economic activity with fiscal stimulus.

A senior White House official acknowledges the differences and concedes that the two-day meeting will not be a forum for developing coordinated action to fight unemployment but a time for individual countries to assess their abilities to meet their own distinctive challenges.

Policymakers of the 12-nation European Union headquarters in Brussels are, for instance, ``struggling [to convince current and future member states] to accept the need for change,'' says Padraig Flynn, EU Commissioner for Social Affairs and Employment.

``There are deep-seated problems on two fronts: generating economic growth and making structural reforms,'' Mr. Flynn said in a Monitor interview during a Washington stopover. Europe's official unemployment rate, which he says under-reports reality, will reach more than 12 percent by the year's end. Flynn, whose portfolio also includes health care and immigration, is profoundly concerned about the point when joblessness and social unrest reaches ``a critical mass'' and discontent spills out onto European streets.

``We don't have growth,'' he says. ``To stand still with existing employment levels, we need 2 percent GDP [gross domestic product] growth; to stop job losses we need 2.5 percent; and to realize new jobs we need nothing short of 3 percent.'' Optimistic forecasts, he notes, put European growth at a marginal 1.5 percent this year, and only at 2.5 percent in 1995.

On the structural side, Flynn says labor laws must be amended to ease the burden of social welfare costs. In some instances, firms can hardly afford to lay off workers because of what employers are expected to spend on compensation. Adding to payrolls is also expensive, given the pricey structure of benefits.

In Germany, where 30 percent of the EU's GDP is generated, industry leaders assert that structural changes will have a limited impact unless they are accompanied by a greater availability of credit.

German Chancellor Helmut Kohl's plan to deregulate the labor market - by offering incentives for part-time work, cutting wages for unnecessary workers still employed in factories that operate under government subsidies (especially in eastern Germany), and encouraging small entrepreneurs and self-employment - is met with skepticism by business leaders who doubt its viability unless the Bundesbank eases monetary policy. The central bank's tight fist not only constrains German consumers and businesses; it overpowers all other European economies, which are inextricably linked to German monetary policy.

G-7 partners and EU participants say they hope that Germany will buckle under pressure from the Detroit conferees to reduce interest rates, but they are likely to be disappointed.

And efforts to push for G-7 fiscal cooperation are likely to be frustrated as well.

US labor leaders still have their sights set on fiscal stimulus, and want the Detroit meeting to cinch it. ``We're looking for a more coordinated approach on fiscal policy,'' says Rudy Oswald, chief economist at the AFL-CIO.

More public spending would create additional jobs at home, and in Europe, it would spur faster growth and greater demand for US goods, Mr. Oswald says. ``Without it,'' he warns, ``Europe stays in a slow recovery as does the US.'' The cost, he says, is ``lost jobs, lost earnings, lost output, and lots of suffering.''

White House officials may want to deflate expectations that just because high-level officials meet, they will come up with solutions. Clinton ``took the meeting to Detroit to move it away from Washington and the press corps here,'' says an administration official.

``He closed the sessions as a way to remove the dialogue from the public domain,'' the official adds.

National Economic Council chairman Robert Rubin last week downplayed the importance of any ``outcome'' from the meeting and told reporters that neither the G-7 group nor the US government would be releasing the customary communique that follows these official gatherings.

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