France Decides to Pay Companies to Hire Youths

CAN France reduce its staggering youth unemployment by paying companies to hire the young?

After dropping last week a hotly contested plan that would have had young workers subsidize their own employment by accepting a lower wage while they received training, Prime Minister Edouard Balladur has fallen back on a more dirigiste approach, that is, one involving government intervention. Now the government will pay companies about $200 a month - $400 in the case of those hired before October - for the first nine months of a ``youth'' job lasting at least 18 months.

The government says the plan will cost more than $1 billion and create 500,000 jobs. But doubts are already surfacing among French politicians and business leaders about whether the plan will really work.

How to begin putting Europe's 20 million unemployed (over 10 percent of the work force, 12.2 percent in France) back to work is the principal question for governments from Helsinki to Madrid. And what more economists are telling policymakers ever more loudly is that, while no one solution is the answer, a few key actions are essential.

Those include lower interest rates - perhaps most important of all. Job training also needs improvement and employers need lower labor costs, economists say.

A 3 percent drop in German interest rates alone would get Europe back to about 8 percent unemployment by 2000, says Ray Barrell, an economist at the National Institute of Economics and Social Research in London. That is a shade above the 7 percent the European Union's commission has targeted for the end of the decade.

Mr. Barrell spoke at a recent Brussels seminar on ``Turning Growth into Jobs.'' Such gatherings are proliferating as the jobs conundrum demands attention.

In Paris last week, a group of seven distinguished economists from around the world - including American Nobel Prize winner Robert Solow - joined the chorus calling for lower interest rates. If pacesetter Germany refuses to move faster, they said, France and other European countries should take the plunge.

The seven economists also recommended maintaining minimum-wage policies in the interest of social cohesion, but called on governments to subsidize them so companies can in effect hire the less-skilled at a lower wage. But to generalize that approach would cost France $35 billion, or 3 percent of gross national product.

THE Paris group also said the infamous ``rigidity'' of Europe's labor markets played little part in the continent's unemployment. But that opinion was not exactly seconded at the Brussels seminar. A number of economists pinpointed long and expensive layoff processes - as in Spain - and generous unemployment benefits, both in amount and duration, as the kind of inflexibility that discourages hiring.

``Developed employment protection legislation slows down the rate at which people are laid off,'' says Jorgen Elmeskov of the Organization for Economic Cooperation and Development in Paris. ``But it also slows the rate of rehiring.''

What Europe cannot do is sit back and hope that renewed economic growth will solve the problem. With its aging population, high spending on social welfare, continuing migration of an often inadequately educated poor, and global competition, Europe faces ``a gloomy scenario if our policies are not changed,'' says Gerrit Zalm, director of the Central Planning Bureau in The Hague.

That call to action is widely seconded, but some warn against too much pessimism. At yet another jobs seminar in Paris last week, French business council President Francois Perigot said, ``We're showing you [youth] that there are solutions, so let's have some calm.'' Even as Parisian youths marched and rioted, he added, France looks to be slowly coming out of its recession.

``It's not at the moment that the sky is beginning to clear that we should cave in to hopelessness,'' he said.