International Business : Concern Mounts in Western Europe About Ability to Cut Joblessness

It is now a virtual certainty that the rich democracies of Western Europe will fail in one of their major political goals of the 1990s: halving the region’s crippling unemployment rates by the end of the century.

And as expectations drop, there is mounting concern about the prospects of making any substantial progress at all in reducing what is widely acknowledged as the region’s single most serious social problem.

This latest worry comes amid reports of new dangers to European economic growth and as experts question the political courage of beleaguered, unpopular governments to take the difficult steps necessary to combat the problem.

“Even with high growth, real cuts [in unemployment] can’t be made without major policy changes, and we don’t see evidence that governments are making those changes,” said Nils Trampe, a senior official at the European employers federation, UNICE. “There is a danger that the Essen process is going to die.”

A series of job-creating measures were agreed upon at a European Union summit in December in the German city of Essen. They include improved technical training, greater flexibility in working hours, deregulation, tax breaks for investments that create jobs, and voluntary union wage restraints.

In collaboration with two trade union groups, UNICE projected that Western Europe’s present cyclical upturn would absorb only about 3 million of the EU’s current 18 million jobless.

In a draft study scheduled to be completed next week, the European Trade Union Institute is also expected to argue that bold, innovative government action is the only solution.

“A bundle of new policies is needed,” said the institute’s director, Reiner Hoffmann. “Now, as before, there is not enough creative thinking going on [in government] to tackle the problem.”

A statement issued earlier this week by the Organization of Economic Cooperation and Development in Paris summed up: “At virtually every turn, governments face problems of policies that are not doing enough to help.”

These assessments follow an EU economic report issued earlier this month indicating that the window of opportunity for implementing reforms may be closing. It predicted that recent turmoil on world currency markets will “exert a dampening influence” on the region’s growth.

Reducing Western Europe’s growing army of jobless is crucial. With the overall EU unemployment rate now standing at 10.8%--double that of the United States--and with the rate for people under 25 hovering at just above 20%, job creation has become the top domestic issue in the region.

It is also a politically volatile one, since two-thirds of Europe’s jobless have been out of work for at least six months, compared to one in five in the United States and Japan.

Economists stress the urgency of implementing new policies now, because they will require years to translate into major gains in the job market.

Failure to cut unemployment would further erode the credibility of governments that are already struggling to resist challenges from political-fringe forces capitalizing on voter discontent.

France’s new president, Jacques Chirac, came to office mainly on a pledge to reduce his country’s 12% unemployment. On Tuesday, his prime minister, Alain Juppe, set out a plan of subsidies and tax exemptions for companies that hire the long-term jobless.

It was during the last recession, when the number of Western European jobless topped 20 million, that unemployment became a priority issue. Jacques Delors, then president of the European Commission, set down the ambitious goal of cutting unemployment in half before 2000.

High joblessness is also a serious financial burden for a group of social democracies committed to providing unemployment benefits that in some cases amount to more than half an individual’s gross income. (In the United States, the average benefit provided is slightly more than 10%.)

A study conducted by the European Union estimated that the 1993 direct costs of unemployment to member governments exceeded $220 billion, a figure roughly equal to the gross national product of Belgium.

However, a series of factors have prevented real progress; among them is a simple, but devastating, financial trap. On one hand, experts agree that high non-wage labor costs--contributions and taxes that in Europe often exceed the wages themselves--are a major hiring disincentive. Yet it is the very income from these taxes that enables governments to sustain the services that Western Europeans demand.

With tax rates and public debt already pushing their outer limits, governments have little maneuverability and few new answers.

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Tough Job Market for Europeans

Unemployment, especially among young people, is the biggest single problem facing the economies of Western Europe. Seasonally adjusted unemployment rates for people under age 25:

Feb. 1995

European Union: 20.3%

United States: 11.7%

Japan: 5.8%

Source: Eurostat