Help Wanted For Europe

By James Graff/Brussels

Since the age of steam, the European labor movement has mustered red flags and brass bands on May Day for a traditional show of strength. But this year, post-May Day, Europe faces a labor paradox that Karl Marx never foresaw. While 15 million people are registered as unemployed in the 15-nation European Union, millions of jobs still go begging for lack of qualified applicants.

It's taken a while, but Europe's leaders have begun to recognize the need for labor reforms along lines familiar in the U.S. They have started to talk about promoting lifelong learning, lowering taxes on labor and increasing the gap between what a person gets on welfare vs. on the job. Indeed, Europe's overall fiscal health and strong growth prospects present a golden opportunity to launch those moves. But like all other opportunities, it may be fleeting. Says Romano Prodi, head of the European Commission, the regulatory arm of the E.U.: "We must act now, because the challenges facing us cannot wait."

Europe's job problem, most experts agree, is grounded in an inflexible education system, high payroll and social-security taxes and barriers to job-seeking mobility. The resulting high number of jobless--roughly half of whom have been out of work for more than a year--is just part of the story. "There are twice as many people in Europe who would work, if work were available, than there are people currently recorded as unemployed," notes the E.U.'s employment commissioner Anna Diamantopoulou. According to the European Commission, only 61% of European adults are employed, vs. 75% in the U.S.

The difference is particularly great among European women, only half of whom work; more than two-thirds do in the U.S. Part of the problem is legal: France and Belgium, for instance, have just lifted 19th century restrictions on women working at night. But there are cultural barriers too, particularly in Southern Europe and rural regions. More women work in countries where there are better public child-care facilities and more equitable wages; Europe needs more of both. "Getting more European women to work isn't just a question of fairness," says Barbara Helfferich, a top aide to Diamantopoulou. "It's a question of being competitive in a globalized market."

Even where things are great, they're not so good. The Netherlands in many respects is Europe's model economy, with an official unemployment rate of 4%--the lowest in the E.U. except for tiny Luxembourg, at 2.8%. Its boom helped the country cut joblessness more than 50% since the early 1990s. "We're working at capacity," says Joop Hartog, professor of economics at the University of Amsterdam. "We should be happy with that." An active labor policy bolsters the boom by offering tax credits for low earners, more child-care and after-school facilities to ease women's path into employment, and more intensive mentoring--or hectoring--of unemployed to get them into the work force. But jobless people over the age of 57 1/2 are not counted as unemployed; neither are 911,000 Dutch people on disability benefits. The high number of disabled--more than three times the number of officially unemployed--is such a stubborn feature of the economy that it's been called the Dutch disease. Tightening disability definitions and other measures haven't cured it.

The employment mismatch is definitely going to get worse unless something is done soon. While E.U. countries spend billions on unemployment benefits and welfare, they are falling behind in the struggle to create a competitive version of the Information Society. According to a study commissioned by Microsoft, Western Europe will face a shortage of 1.7 million information-technology (IT) professionals by 2003. European firms provide only 25% of the E.U.'s information-technology needs, the European Commission says, and American companies gladly fill the gap.

But it isn't just on the new frontier that workers are missing; there aren't enough old-economy employees either. In France alone, as many as 50,000 construction jobs are unfilled, and there are an additional 20,000 or so open for truck drivers. Europe does not have enough accountants, welders or machine-tool operators. And as traditional production sectors become more service oriented, there is a crying need for people with advanced technical skills who can also talk intelligibly to clients. University enrollment has dropped to below replacement levels for highly qualified but unglamorous professions like chemical and metallurgical engineers. As a result, salaries have ballooned.

The outcome is a two-track society that leaves millions of poorly qualified unemployed standing in a cloud of dust while those in demand speed past. And for employers, these are especially demanding times. "Businesses have to understand what many employees already know--that in a dynamic economy and labor market, employees have the ball," says Mercedes Saddier-Chetochine, director of research and development for the Association for the Employment of Managers in Paris, an employment-consulting agency. Small business employers like Jean Lathouwers, president of software producer LSA Delta in eastern Belgium, are learning that lesson painfully. "We have to pay new people more than they're worth," he says, "and the last to come are the first to go. We're moving toward a real American situation, and we're not ready for that."

What should be done about it? For starters, Europe must turn out the kind of employees that the job market needs, in the quantities required. Belgian universities, for example, graduate some 2,000 computer scientists every year; the demand is closer to 6,000, says Karel Uyttendaele, director of Fabrimetal, an employers' federation that includes the IT sector. German universities have upped their capacity for IT students--from 13,000 two years ago to 40,000 today. But that is still not enough, argues Ullrich Heilmann, an economist with an Essen think tank. "The way it is now, you have professors standing in huge lecture halls talking to nobody about things nobody cares about, while IT courses are overfilled."

Hanne Shapiro, an IT learning expert at the Danish Institute of Technology, advocates a much closer partnership between schools and businesses to make sure that graduates emerge with skills employers need. But that alone is not enough, she adds. "You have to promote a lifelong willingness to keep learning. Unless you build that into the system, you're bound to never catch up."

Expanding the labor pool might help ease the shortage for strapped firms in the medium term, but it doesn't necessarily reduce the number of Europe's millions of long-term unemployed. In many countries, there is scant incentive to seek work. In Belgium, for example, a head of family who loses a longtime job can get up to $804 a month in unemployment, for an unlimited time. A typical low-wage job in Belgium pays only $898 after taxes. German employers complain about similar paltry incentives to seek work.

The nominally left-wing governments of Britain, the Netherlands and Denmark have led the way in decreasing unemployment by increasing the incentive to work, though the reformed unemployment system still looks amazingly cushy by U.S. standards. The Danish government has cut the time jobless can receive generous unemployment benefits from nine years to four. It has also launched an aggressive program of subsidizing jobs for young people and pressuring the unemployed into taking them. "They succeeded in basically doing away with unemployment among those under 25," says Richard B. Larsen, director of the Confederation of Danish Industries.

In Britain, unemployed youth are being nudged into work by the government's "New Deal" program. Those under 24 get four months of intensive job counseling, followed by entry into a subsidized private job, a public-service job or full-time training or education. Those who reject the options can face cutoffs in benefits for up to six months, and then the cycle begins again. The government also gives low-wage working families a substantial tax credit to increase the distance between employed income and welfare, and next year will be offering those who leave the dole a $160 one-time payment to offset the costs of entering employment.

Spain's steep growth rate over the past few years has helped the conservative government of Prime Minister Jose Maria Aznar create more jobs since 1996--1.1 million--than the rest of the E.U. combined. Although Aznar has enjoyed surprisingly good relations with Spain's labor unions, the two sides disagree on how to continue chipping away at Spain's 15.2% unemployment rate, the E.U.'s highest. Employers are pushing to expand the ranks of workers on short-term contract and reduce the social security costs they bear in layoffs. The unions argue that limited work contracts--covering two-thirds of Spain's teachers, health and construction workers--aren't a good fix for 1.65 million unemployed.

The eminent historian Jacques Barzun has pointed to a paradoxical precedent for Europe in the kind of dual labor market being created by the cyber revolution: the Dark Ages. Back then, he observes, clerics in Europe's monasteries were the keepers of arcane knowledge, namely literacy, who benefited from their monopoly of the skill. The cyberliterate of today are increasingly in a position to lord it over those who fail to master the skills of the new economy. So for European policymakers, the alternatives are perhaps more clear, and more stark, than they seem: Middle Ages or Renaissance?

--With reporting by Lauren Comiteau/the Hague, Bruce Crumley/Paris, Helen Gibson and Jennie James/London, Ulla Plon/Copenhagen, Jane Walker/Madrid, Steve Zwick/ Cologne, with other bureaus

With reporting by Lauren Comiteau/the Hague, Bruce Crumley/Paris, Helen Gibson and Jennie James/London, Ulla Plon/Copenhagen, Jane Walker/Madrid, Steve Zwick/ Cologne, with other bureaus