World View : The Case of the Diasppearing Worker: What’s Gone Wrong? : National economies are growing, yet unemployment is on the rise. Some blame technology; others cite high wages and social programs.

Compared with some of Europe’s basket-case economies, Denmark is doing fairly well right now. But that’s little consolation to Ole Ladefoged.

Ladefoged, who looks younger than his 37 years, was laid off from his job taking care of children in a day-care center two years ago and hasn’t been able to find work since. With Denmark’s unemployment rate at 12.3% and rising, competition for jobs is growing fiercer and fiercer.

“When I apply for a job like the one I used to have, 200 or 300 other people also turn out,” he said. “I’ve been turned down any number of times.”

He may have to wait a lot longer.

In Denmark as in much of the rest of the world, unemployment is rising even where national economies are growing. This pernicious phenomenon, dubbed “jobless growth” by the U.N. Development Program, will loom large as the leaders of the seven largest industrial nations gather in Tokyo beginning Wednesday for their annual economic summit meeting.

In the United States, which was the industrial world’s most efficient generator of new jobs in the 1970s and 1980s, the unemployment rate rose to an average of 7.4% last year even though the economy recovered, albeit weakly, from the previous year’s recession.

East Asian economies have proved to be the world’s most efficient at providing their citizens with work. Japan’s unemployment rate is rising, but to levels that are minuscule by American standards: 2.3% now, expected to reach 2.6% next year. The region’s newly industrialized countries are doing even better.

The Third World, especially Africa and Latin America, by contrast, remains mired in a state of permanent unemployment crisis. The population is growing by an average of 2.3% a year, much faster than jobs, in the world’s developing countries. The number of job-seekers is growing even faster as more women enter the work force.

“Without substantial policy changes, the employment outlook for these people is bleak,” the U.N. Development Program reported recently.

Increasing Third World unemployment is certain to drive more and more people from the countryside to the cities and from developing countries to industrialized ones. Either way, the migrants are moving from one disaster to another because jobs are also scarce at their destination.

At no potential destination is that more vivid than in Western Europe. In the two decades since the first Arab oil embargo, the unemployment rate has more than tripled, from 3.1% in 1973 to more than 10% today. The brokerage house Morgan Stanley International foresees a jobless rate of 14% to 16% in the next couple of years.

Altogether, the U.N. report says, the world will need about 1 billion new jobs by the end of the decade. At present rates of employment growth, that goal seems out of reach.

What is going wrong? Before the world can put its people to work, it will have to identify the forces responsible for throwing them out of work. And that is a controversial area.

Some experts blame technology; others say technology ultimately generates more jobs. Especially in Europe, high wages and generous benefits are blamed for pricing workers out of the market, and unemployment benefits are blamed for destroying the incentive to work. Solutions are hard to find.

Continental Europe and the United States, according to a recent report on unemployment by the Organization for Economic Cooperation and Development (OECD), have adopted diametrically opposed approaches. Neither, it says, has worked very well.

The United States has let market forces determine who has jobs and at what pay levels. The predictable outcome, the OECD found: a huge gap between pay for skilled workers, who are increasingly in demand, and unskilled workers, who can find work only for low wages.

“Such a development--as has happened in the United States--slows the process of job loss for unskilled workers,” the OECD said. “But this is achieved at the risk of creating a larger class of the ‘working poor.’ ”

Europe, by contrast, has tried to protect workers by setting relatively high minimum wages. But that strategy, the OECD said, “serves only to manifest the problem in a different form: Instead of being (the) working poor, unskilled workers are unemployed.”

As for developing countries, they have the worst of both worlds: a disastrous combination of high unemployment and low wages for those who have jobs.

“In sub-Saharan Africa, not a single country had single-digit unemployment figures,” the U.N. Development Program said. “In Latin America, urban unemployment has been above 8%. And in Asia, countries like India and Pakistan, despite respectable (economic) growth rates (more than 6% a year), had unemployment rates above 15%.”

In general, the U.N. Development Program blames the worldwide jobs slump on a phenomenon that most others consider desirable--higher productivity. In simple terms, according to the U.N. agency, machines are doing what people used to do, allowing employers to produce more goods with fewer workers.

“In industrial countries, a major part of the output growth came from total productivity increases--primarily an outcome of labor-saving technological advancement,” the U.N. report said.

But Barry P. Bosworth, director of the Jimmy Carter Administration’s Council on Wage and Price Stability, regards this view as short-sighted. Far from being harmful, he said, increased worker productivity is the only thing that can allow workers’ wages to rise faster than inflation.

“I think some people have it backward,” said Bosworth, now an economist at Washington’s Brookings Institution. “We are not increasing the output of the existing work force enough.”

He explained: “There is no need for make-work jobs or things to entice companies to hire more workers. . . . You have to have greater capital investment.”

Jorgen Birger Christensen, chief economist of Den Danske Bank, Denmark’s biggest, said most economists have rejected technology as a root cause of unemployment growth.

“If technology were the explanation,” he said, “then 98% of the work force would be out of work because the other 2% could make everything that people need.”

Instead, he said, increases in productivity generate new wealth, which in turn creates consumer demand for things that did not exist before. If 2% of the work force can provide all of humankind’s necessities, he said, the other 98% can be employed making new products (videocassette recorders are a good example) and offering new services (tourism is booming worldwide).

In their search for unemployment’s causes, many economists point not to the march of technology but to unemployment benefits and other social programs intended to insulate the public from the harsh realities of free markets.

Most obviously, analysts say, generous unemployment benefits rob workers of the incentive to find work. But just as important is the effect of high minimum wages and of the payroll taxes, particularly high in most of Europe, that finance generous social programs.

These policies, adopted most enthusiastically in Europe but also to a degree in the United States and other industrial countries, can raise the cost of employing workers beyond the value of their output.

It is no wonder, according to the OECD, that employment in the 12-nation European Community has grown by only about 7% since 1973 while the United States has generated new jobs at about five times that rate.

“Europe’s real problem, and particularly Germany’s, is that it cannot stay competitive when its work force is putting wheels on a VW at $26 an hour if the Poles and the Chinese will do the job for less than $1 an hour,” said David C. Roche, Morgan Stanley’s top London-based strategist.

A survey by the German Economic Institute in Cologne found that Germany led the industrial world in labor costs for the manufacturing sector in 1991, at about $24 an hour, followed by Switzerland ($23), Norway ($22.50) and Sweden ($22). European countries also held down the next five spots, followed only then by Canada and Japan ($17.50) and the United States ($15).

Europe’s wages themselves are not out of line with those in the United States and Japan. It is the non-wage costs--such as generous holiday pay and the payroll taxes--that separate Europe from the rest of the industrial world. Germany’s non-wage labor costs for the manufacturing sector were nearly triple those in the United States and Japan in 1991, according to the Cologne institute.

But if dismantling its social welfare system is the price of bringing down its unemployment rate, most of Europe is not prepared to pay it--at least not all of it.

“I would not advocate anything that resembles a United States model,” said Danish Foreign Minister Niels Helveg Petersen. “What we see in America are very, very serious defects . . . with social problems, crime and hopelessness in large urban areas.”

Most European countries, however, are trimming social programs and raising taxes in an effort to get a handle on budget deficits. The pressures against such change are fierce. Thousands of Belgian workers took to the streets last week to protest the government’s plans to raise taxes and cut social programs.

The Danish government, seeking to boost the economy and make working a more attractive alternative to unemployment compensation, is cutting taxes. Parliament voted June 24 to bring the top income tax rate down from 68% to 62%--still nearly double the top U.S. rate of 31%--and the lowest rate from 50% to 40%.

The government is still studying whether Denmark’s high minimum wage (about $23,000 a year) discourages companies from hiring low-skilled workers and if its generous unemployment benefits (about $20,000 a year) make joblessness an attractive alternative to working.

Meanwhile, Denmark’s jobless rate keeps rising. And the raw unemployment statistics mask the phenomenon of underemployment--people working below their capacity when work is scarce.

Karen Hyldig, 27, quit her job as a bank teller in Copenhagen a year ago so that she could spend seven months traveling around the world with her boyfriend. Unable to find work in a bank when she returned, she settled instead for a job as a salesclerk in a shoe store.

“Jobs are very hard to find,” she said. “You take whatever you can get. Everything is down except the unemployment rate.”

Long-term unemployment is another problem endemic to Europe. The OECD says nearly half of the European Community’s jobless have been without work for at least a year, compared with about 6% in the United States and Canada.

Across Europe, the OECD said, there has been almost no growth in private-sector employment for the last two decades; new jobs have been almost all in the public sector. In North America and Japan, by contrast, private employment has grown strongly since 1974, although jobs in the private sector dipped in the United States during the 1991 recession.

The world’s one bright spot on the employment front is East Asia, especially rapidly developing countries such as South Korea and Singapore.

“Labor productivity in these countries has been increasing at an annual rate of 10% or more--half of which has been attributed to investment in education and technical skills,” the U.N. Development Program report said. At the same time, it said, unemployment held below 3% in Japan and many East Asian countries while reaching 6% or more in the rest of the world.

The U.N. agency attributed the East Asian performance to a combination of land reform and an increased emphasis on education and job training.

“If one message does emerge, it is that the solution is to focus not merely on capital or on production processes--but on people,” the United Nations says. It urges more land reform--allowing underemployed peasants to become self-employed farmers--as well as more education and programs to promote small business.

The OECD has a somewhat different prescription. It too urges better education and training. Unlike the United Nations, however, it also recommends greater wage flexibility in countries that now closely regulate how much private-sector workers must be paid.

The OECD report concludes that the best long-term strategy for all governments is to try to shift economic activity to the private sector. But in many countries that would be a controversial strategy.

Will President Clinton and the leaders of the other six major industrial countries do much about global unemployment at their meetings this week? The short answer is: probably not.

“It would be nice to see them use their authority to give leverage to individual leaders to begin to attack these problems,” said a U.S. government economist who asked not to be identified. “But this may not be the right time to do it because of the lame duck governments in Japan and Italy, the divided government in France and a variety of problems elsewhere.”

The Jobs Gap

Labor force and jobs projection, 1990-2000 (1990:100)

* OECD

The OECD is is made up of the following countries: Australia, Austria, Belgium, Britain, Canada, Denmark, Finland, France, Germany, Greece, Iceland, Ireland, Itay, Japan, Luxembourg, Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, Turkey, United States.

Labor Force: 105

Jobs: 104

* Sub-Saharan Africa

Labor Force: 138

Jobs: 127

* Latin America

Labor Force: 127

Jobs: 114

* South Asia

Labor Force: 122

Jobs: 116

* East and South-East Asia

Labor Force: 117

Jobs: 137

Source: U.N. Development Program

Economies Up, Jobs Down

Ten of the 24 leading industrial countries in the Organization for Economic Cooperation and Development lost jobs last year even though their economies grew. For the OECD, economic growth was 1.5% last year, but the number of jobs fell 0.1%. This year, the OECD expects 1.2% economic growth to be accompanied by another 0.1% decline in jobs. Following is data from selected nations.

1992

Economic growth Jobs Growth United States +2.1 +0.6 Japan +1.3 +1.1 Germany +2.0 -1.7 France +1.3 -0.5 Italy +0.9 -0.6 Britain -0.6 -2.9 Canada +0.9 -0.8 Austria +1.5 +1.8 Belgium +0.8 -0.4 Denmark +1.1 -0.1

1993*

Economic growth Jobs Growth United States +2.6 +1.1 Japan +1.1 +1. Germany -1.9 -2.4 France -0.7 -1.0 Italy -0.2 -1.2 Britain +1.8 -1.2 Canada +3.1 +1.4 Austria -0.6 -0.3 Belgium -0.7 -1.3 Denmark +0.7 -1.1

* Estimate Source: Organization for Economic Cooperation and Development *

Labor Costs

Hourly wage and non-wage costs in the manufacturing sector in 1991.

Wage costs Non-wage costs Total Germany $12.80 $11.00 $23.80 Switzerland 15.10 7.70 22.80 Sweden 12.40 9.40 21.80 Italy 9.30 9.80 19.10 Netherlands 10.40 8.50 18.80 Denmark 14.80 3.50 18.30 Canada 12.80 4.60 17.40 Japan 13.30 4.10 17.40 France 8.30 7.40 15.70 United States 10.90 4.10 15.00 Great Britain 9.40 4.00 13.40 Spain 8.20 5.10 13.30

Source: German Economic Institute, Cologne