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Europe: EU Report Calls For Shake-Up Of Labor Policies

Brussels, 14 February 1997 (RFE/RL) - In a remarkably frank appraisal of five years of mounting unemployment in the European Union, the group's Executive Commission has called for a radical shake-up of labor policies as the only way to resolve a jobs crisis in most of its 15 member states.

Today, one in nine EU workers is on the government's dole -- that is, more than 18 million unemployed, or almost 11 percent of the work force.

In its 1997 Annual Economic Report issued yesterday, the Commission pulls no punches in analyzing the EU's failure to stem mounting joblessness despite increased economic growth. The Commission attributes the failure to what it calls "high wage and non-wage costs as well as...rigid employment security rules." Translating that economic jargon into plain language, the Commission is saying that most EU members are insufficiently flexible in their labor policies -- for example, unwilling to fire or retrain no longer productive workers -- and unwilling or unable to reduce social-benefits costs which make the creation of jobs too expensive for many employers.

In fact, the Commission all but says in so many words that the U.S. and British experiences -- both nations have relatively low jobless rates -- have shown how to turn increased growth into increased jobs.

Since 1991, its report says, the EU has had an average annual growth rate of 1.5 percent, but at the same it has lost 4.5 million jobs at rate of 0.4 percent every year. The report contrasts the EU's record with the U.S.' during the same period. It says that the U.S.'s annual growth of about 2.3 percent has been accompanied by a 1.2 increase in jobs annually.

The report concludes that the most rapid route to what it calls "employment-intensive growth" would be to encourage a U.S.-style "downward widening" of wages. The Commission rules out this option as "neither feasible nor desirable (in the EU) for social and political reasons" -- that is, because most of its governments are unwilling to undertake them. But the report then proceeds to advocate what it calls "pragmatic approaches" that amount to U.S. and British practices in all but name.

These practices, now explicitly recommended by the Commission, include wage agreements that will, it says, "provide for more differentiation" among workers of varying levels of qualification and in different regions and sectors. The Commission also urges "in a similar vein, temporary entry-wages for the low-skilled, youth or long-term unemployed" -- an employment policy that most EU governments have shunned because of its possible electoral effects. It also calls for cuts in employer payroll taxes and reforms that would create or encourage more part-time jobs. In the United States and Britain, most of these measures have been in place for some time. Britain, in fact, pioneered just this kind of labor-market flexibility in the 1980s.

The U.S. unemployment rate is now just above five percent. Among EU members, Britain has the lowest jobless rate -- 7.5 percent and falling rapidly. Except for Ireland and Finland, unemployment is either rising or stagnant in every other EU state. Assessing these figures, Britain's senior EU Commissioner Sir Leon Brittan said yesterday: "It's difficult to resist the conclusion that many (West) Europeans are pricing themselves out of jobs."

The job crisis in the EU is not only creating severe social strains. Mounting unemployment now also seems to be threatening to wreck the timetable for the creation of the European Monetary Union (EMU) set for the start of 1999. Chancellor Helmut Kohl warned last week that a dramatic January surge in unemployment would make it difficult for Germany -- Europe's largest economy -- to cut public spending to the standard required to join the EMU in 22 months.

But when it comes to the vaunted EMU's chances, the Commission's report is far more rosy -- although some analysts say it is far less honest. The report forecasts an overall 2.3 growth rate for the EU this year. On that basis, the Commission says that all EU members, except economically backward Greece, have a chance before the end of the year of meeting the stiff public-debt and budget-deficit criteria for joining the EMU.

The Commission's EMU assessment, however, is regarded as very optimistic by private-sector economic analysts. Most them say that only "creative national accounting," and a lax attitude on the part of the Commission's monitors, will permit most EU nations to be part of the first wave of EMU members. What's more, the analysts say, the spiraling job crisis could lead to a social explosion in France, with its chronically high unemployment rate, and perhaps other member states as well.