Europe's Awkward Choice: Swap Wage Freeze for Jobs?

German metalworkers offer concession to gain 300,000 jobs

IF the product isn't moving, cut the price to boost sales. This is the economic logic behind the job-creation proposal made by the head of the big metalworkers' union here, Klaus Zwickel of IG Metall.

In this case, the ''product'' is the metalworkers' labor. Not enough employers are buying it. Unemployment remains stubbornly high - around 9 percent - despite German economic expansion.

So Mr. Zwickel has offered Gesamtmetall, the employers' group with which his union negotiates, a deal: The workers will forgo real wage increases for 1997 if, over the next three years, the industry creates 300,000 new jobs plus 30,000 slots for the long-term unemployed.

The proposal is widely hailed by employers' groups and other observers, even those who say it is unworkable in its present form, as an important acknowledgment from the union side that the high cost of labor is constraining job creation.

The German experience, though unique, is reflected across much of Europe. Highly structured, highly regulated labor markets, which raise the cost of job creation, have led to widespread drops in employment rates over the last quarter century, even as employment has risen within developed nations outside Europe, such as the United States, Canada, and Japan.

High taxes, stiff severance-pay requirements, and a ban on fixed-term employment all conspire to make it harder for European employers to ''buy'' new workers. After each recession, residual unemployment is a bit higher.

The trend may accelerate with the ''deepening'' of the European Union as labor-related rules and regulations originating in one member country are extended throughout the EU. The European Parliament is considering a community-wide ban on telemarketing, for instance, which is already illegal in Germany. Americans used to having dinner interrupted for a telephone sales pitch may be sympathetic to the desire behind such a proposal, but a ban would trim potential jobs.

European Commission's new scheme

Similarly, the European Commission is reported to be pushing to require all employers in Europe to establish German-style ''works councils,'' which consult on all issues involving workers, such as layoffs. These councils are seen as characteristic of ''responsible'' German trade unionism, which gives labor more of a voice than in other countries. But this commission proposal ''will horrify'' European employers, a British newspaper has predicted.

Germany has what those who follow these labor issues refer to as an insider-outsider system: It represents employers and those working, but not the unemployed. One characteristic of this system is the extension, de facto or de jure, of wage rates for given types of work across all firms within an industry.

US system puts pressure on wages

In the US, by contrast, ''the pressure of the unemployed is very real,'' says an official of the Organization for Economic Cooperation and Development. A union agreement may prevent an individual from knocking at the factory gate and announcing his or her willingness to work for two-thirds of the going rate, but enough work is done outside collective-bargaining agreements to exert downward pressure on wages - and this makes it easier to create jobs.

European countries also differ from their outside counterparts in the length of time the average spell of unemployment lasts. Employment is significantly higher in countries where the system is flexible enough for the unemployed to get a job easily. Also, employment is, unsurprisingly, lower in places where unemployment compensation is so generous it discourages job-seeking.

Meanwhile, Zwickel, the metalworkers' chief, is to meet soon with Chancellor Helmut Kohl. Three-way negotiations, including the government, will be necessary because the Zwickel proposal includes an offer to cut wages for the long-term unemployed who get jobs, as well as a call for the government to reverse its decision to cut long-term unemployment and welfare benefits.

After the employers' group meets in mid-December to elect new officers, it will be able to start talks with the union. The union has endorsed the wages-for-jobs trade.

The proposal has been criticized on the grounds that it would hold the employers' group responsible for something it cannot deliver: Gesamtmetall represents member firms in wage negotiations but does not control their hiring.

Nonetheless, what one observer calls a ''political understanding'' could be reached in favor of job creation, especially with the chancellor involved. Earlier this fall, an apparent shortage of apprenticeship slots was rectified after a similar round of discussions.

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