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Shock Treatment For Eastern Germany (Int'l Edition)


International -- European Business: GERMANY

SHOCK TREATMENT FOR EASTERN GERMANY (int'l edition)

With unemployment already high, Kohl cuts job funding

Gunnar Muller hasn't held a steady job since 1993. Two successive government-sponsored retraining programs haven't helped much. First, the 45-year-old metalworker spent 18 months learning to install gas heaters at a vocational school near his home in the eastern German town of Sangerhausen. That landed him a temporary, $9.30-an-hour job in far-off Stuttgart. Back on the street five months later, he enrolled in a half-year class on how to run computer-controlled machine tools. Since September, he has been looking for work again. "Companies would rather hire a young apprentice than a 45-year-old," he sighs.

Muller has plenty of company. Sangerhausen and the surrounding region in the state of Sachsen-Anhalt have Germany's highest jobless rate. Overall German unemployment is at a postwar record of 11.8%--a challenge for Chancellor Helmut Kohl's Christian Democratic Union, with parliamentary elections less than a year away. But in the former German Democratic Republic, the Chancellor's campaign pledge to halve the jobless rate by 2000 rings painfully hollow. Unemployment in the east is projected to rise to 19.6% next year, compared with 14% two years ago. That is likely to send more angry voters into the arms of the rival socialist party, which is already far ahead of the Christian Democrats in the east.

Although western Germans also grumble about unemployment, they can see light at the end of the tunnel. In the west, corporate restructuring has been the cause of most layoffs as companies trim down to compete in a global economy. The payoff has been rising profits, an economy forecast to grow by 2.8% next year, and the promise of more jobs. In the east, by contrast, gross domestic product is predicted to grow by only 2% in 1998. And in Sangerhausen, Germany's federal government, the biggest employer, is slashing spending. Squeezed by soaring welfare costs and budget cuts needed to qualify for Europe's common currency, Kohl is cutting job spending in the east by 12% this year. Although economists think Kohl's shock treatment is overdue, it hits at the worst possible time.

In Sangerhausen, a mining center until communism's fall, 24.7% of the workforce is officially idle. Add the people in government retraining and make-work programs, and nearly 33% lack employment. Every day, hundreds of job seekers descend on the local employment office, a gray, three-story former miners' dormitory, vainly looking for work.

Costly programs keep some afloat--and give the town an eerie feeling of false prosperity. Its cobbled downtown streets are lined with renovated buildings, many with tidy boutiques on the ground floor. On one recent blustery morning, the sidewalks were bustling with shoppers. Where does the money come from? Make-work schemes and retraining courses for which the government will shell out $8.5 billion in 1997. Such programs will remain an integral part of the economy.

BOONDOGGLES. Local employment offices operate "practice companies" that simulate everything from running a restaurant to erecting a building. In the Sangerhausen region, there are 22 such entities. Each employs about 20 workers, who are paid an average of $1,200 a month for six months. A typical job: Build walls, then tear them down again. Despite budget cuts, Sangerhausen officials plan to shift resources to keep the practice companies operating.

Then there are retraining programs, which can last up to two years. In early October, Thomas Spater, a burly, 32-year-old construction worker, got government funding for a 21-month course in how to lay tiles. He'll receive about $1,200 a month to cover living expenses, and the government will pick up schooling costs, which average $38,000 per student. Spater figures he'll have no trouble getting a job when he graduates. "Almost everybody has tiles," he smiles.

For many, though, these programs haven't led to a job. Only 20% of people who leave practice companies actually find work. And all too frequently, retraining graduates who can't get a job recycle back through another school.

Government officials admit they never expected make-work programs and retraining schemes to provide long-term solutions in the east. State and federal governments are trying to lure new businesses with subsidies and tax breaks. But the region's hefty per-unit labor costs, 23% above western Germany's thanks to low productivity, are a powerful disincentive. Like chronically depressed southern Italy or the Basque region of Spain, eastern Germany will be on the dole for years to come.By David Woodruff in Sangerhausen


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