Short-time work cushions Europe in crisis

June 3, 2009

paul-taylor— Paul Taylor is a Reuters columnist. The opinions expressed are his own. —

Unlike the 1930s, there are no hunger marches or tent cities of the homeless and jobless in Europe’s biggest economic slump since the Great Depression.

Welfare states built after World War Two, and labour market regulation in many West European countries, have cushioned workers and their families so far from the full force of the collapse of banks, the credit squeeze and a deep recession.

“People who were criticising the European welfare state just a few months ago are now praising it as a shock absorber in the crisis,” said Jacques Delors, who championed pan-European social legislation as European Commission president from 1985 to 1994.

In particular, state-subsidised short-time working has kept hundreds of thousands of Germans, French, Dutch and Belgians in jobs after their employers’ order books dried up.

This system enables firms to retain experienced staff while reducing their wage bills for a limited period as the government contributes towards pay. As a result, consumer spending is holding up better than expected in those countries.

Unless extended, those schemes will mostly run out next year, when unemployment is forecast to soar to 26 million in the European Union, some 10.9 percent of the workforce, from a 44-month high of 20 million or 8.3 percent in March 2009.

European governments hope the impact of economic stimulus programmes and the return of at least timid growth will click in at that stage, saving many households from poverty and averting a potential double-dip recession due to depressed demand.


Economic liberalisers have long argued that continental western Europe’s rigid labour laws are a barrier to growth and a source of inefficiency. Now that U.S. unemployment has overtaken the EU level for the first time since the early 1980s, they contend that flexible labour markets will enable America to recover faster than Europe.

But the crisis is prompting a rethink. The countries that have done best to soften the blow are those with a tradition of social partnership among employers, trade unions and government, such as the Netherlands, Germany and the Nordic states.

Political support for further liberalisation has evaporated as EU governments try to shield voters from the storm.

In fact, economist Giuseppe Bertola of Turin University says flexibility-oriented reforms enacted over the last decade, which boosted the employment rate, contributed to unemployment rising more rapidly in Europe in this crisis than in past downturns.

Young people, migrants, temporary agency workers and staff on fixed-term contracts have been worst hit by redundancies. In Spain, where the collapse of a housing boom triggered mass layoffs of unprotected workers, the unemployment rate reached a staggering 17.4 percent in March — the highest in the EU.

In many European countries, workers who do hold on to their jobs face pay cuts, later retirement, a smaller pension, or all of the above. Mostly this is not on the scale of the sacrifices accepted by unionised U.S. auto workers to try to save their jobs at Detroit’s big three car makers.

“A lot of workers are under pressure, apart from reduced working time, to take wage freezes or wage cuts of one sort or another,” said John Monks, general secretary of the European Trade Union Confederation (ETUC), an umbrella group for organised labour in the 27-nation EU.

“It’s take it or leave it for many workers for the moment. That’s the mentality,” he said in an interview.

Nor is it confined to the private sector. Governments in the worst affected countries are forcing public employees to accept sharply lower pay or higher pension contributions.

Ireland, stricken by a housing crash and a banking meltdown, has imposed a 7 percent pension levy on public employees.

Latvia, gripped by a balance of payments crisis, cut public workers’ pay by 10 percent last year and has to slash another 20 percent this year as a condition for an International Monetary Fund loan. Hungary, also under IMF orders, has cut pensions and social benefits and axed public sector 13th month wage payments.

Despite Delors’ efforts, employment and social policy is set at national and not EU level, largely due to opposition from Britain, which introduced easier hire-and-fire rules and tougher strike laws in the 1980s.

As a result, protection for workers is uneven. Data collated by the ETUC shows workers have been hit hardest hit in eastern Europe, where job protection was dismantled after the fall of communism and the social safety net is thinner than in the West.

But after two decades of deregulation and rising inequality in Europe, maybe the pendulum is starting to swing back.

(editing by David Evans)

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