Nobody needs to tell Guenes that Europe's job market is awful. Unemployment in the euro zone has been rising steadily for two years, and now stands at 8.7%, with 12.1 million people out of work. True, jobless rates across most of the Continent aren't quite as high as during the last major downturn, in the early 1990s. But they're already bad enough to generate political heat, especially in Germany, where unemployment has hit 8.9%. (That's the rate calculated by bean counters inside the European Union's bureaucracy. The German government's official number is even higher: 10.8%, the highest level since reunification.) And the numbers are bound to get worse. Most economists expect euro zone unemployment to top 9% by September, as employers continue shedding jobs in a stagnant economy. A strengthening euro only adds to the pressure. "We have to cut costs, and the only way we can do that is by cutting jobs," says Matthias Trott, communications manager at German shipbuilder Kvaerner Warnow Werft, which in early May announced plans to lay off 20% of its workers as it struggles to make money on orders priced in U.S. dollars.
Yet there's a silver lining in the dark numbers. Corporate Europe is at last getting into fighting trim. Germany's four biggest banks have cut more than 10,000 jobs in that country, while France's Alcatel is slashing more than 30,000 worldwide. Sweden's Ericsson, having cut 50,000 jobs in the past two years, now aims to get rid of 13,000 more by the end of 2004. Even former state monopolies such as Deutsche Telekom and France T?l?com are downsizing, as are Germany's public banks, the Sparkassen and Landesbanken.
Europe has suffered wrenching job losses before, especially in cyclical businesses, such as car manufacturing, and in industries like mining and textile manufacturing that became economically unsustainable. But the current wave of layoffs is different. Many companies are cutting preemptively, to sharpen their competitive edge. French tiremaker Michelin, for instance, shed 7,500 jobs, or 10% of its European work force, starting in 1999 when the economy was still strong. That helped keep profits rolling in during the downturn. And despite Europe's reputation for inflexible labor markets, cutting payrolls is easier than it used to be because of government reforms and changes in worker attitudes over the past decade. "During the last downturn of 1992 and 1993, the management of most big European companies waited until the last second to reduce head counts," says economist Eric Chaney of Morgan Stanley in London. "Now, under the pressure of stock markets, management is taking much quicker decisions."
That's the good news. The bad news for laid-off workers is that even if the economy begins a gradual rebound as expected by 2004, Europe's corporate giants aren't likely to give them their old jobs back. Manufacturers such as Michelin are investing in new technologies that will reduce the need for future hiring. Some companies, such as Royal Philips Electronics and Siemens are outsourcing jobs to cheaper labor markets in Eastern Europe and Asia. Others simply believe they need fewer workers, period. That's the case at Germany's Commerzbank, where Chairman Klaus-Peter M?ller, bucking a longstanding tradition of protecting jobs in units that are making money, is arguing for job cuts in the highly profitable investment banking department.
So where will new jobs come from? Mostly from smallish businesses and startups, economists say. That's likely to give a nice employment bounce to countries that have enacted business-friendly reforms. They include Denmark, which has slashed payroll taxes, and Italy and Spain, where employment has risen since labor laws were relaxed to encourage part-time and temporary jobs. Germany and France, by contrast, have been slower to ease tax and regulatory burdens on employers, and now they are feeling the heat. "It's time to stop talking and act," German Labor & Economics Minister Wolfgang Clement said at a press conference on May 6.
So far, Germany has made little progress with much-needed reforms. And unions oppose efforts by Social Democratic Chancellor Gerhard Schr?der to cut social security costs and make it easier to hire and fire workers. The battle is due to come to a head at a special SDP congress in Berlin on June 1. Even if Schr?der is able to push through his reform package as expected, it's a cautious package that only begins to attack the rigid German labor market and bring social services into line with what the nation can afford. Meanwhile in France, Prime Minister Jean-Pierre Raffarin's center-right government says it wants to reduce heavy payroll taxes, but so far it has been preoccupied with other issues such as pension reform.
Yet employers and unions could make progress even without government action. Employers in France and Germany, taking advantage of laws already on the books, are hiring more workers on short-term contracts. Some 12% of employees at French auto maker Renault work on such contracts, averaging only 31 days, which allows Renault to adjust production to ebbs and flows in demand. Unions at Ericsson, persuaded by management arguments that the company's survival was at stake, agreed to waive longstanding rules that would have required younger, lower-paid workers to be laid off before more senior employees. Ericsson, in turn, gave older employees more generous buyout packages. Other employers, such as Paris technology consulting group Cap Gemini Ernst & Young, have even negotiated packages giving departing workers a cash payment earmarked as seed money to start their own businesses.
At least some European workers are learning to handle job insecurity. Proffice, a Stockholm temporary staffing agency, has seen its business grow an average 50% annually over the past decade. It now has more than 10,000 workers placed in jobs around Scandinavia. Hans Uhrus, Proffice's senior vice-president, says that many younger workers are unfazed by frequent job changes and view periods of unemployment as an opportunity to retrain. "Twenty years ago, everybody who started working expected to retire after 25 years with a gold watch. Now, that's unusual," he says.
But if Europe's labor markets are getting more flexible, many of the jobs they're creating pay lower salaries. Olivier Borie, 32, was laid off last summer by Alten Group, a Paris info-tech consulting firm. Unable to find work, he enrolled in a master's degree program to study strategy and organizational management, taking advantage of unemployment benefits that cover his expenses and tuition. He's optimistic about finding a job after he completes his degree in December. "The big companies aren't recruiting, but the smaller ones, those with 20 or 25 people, are doing better," he says. Even with his new degree, though, Borie says he expects to earn less than he did at Alten. That's tough to swallow. But it might be a fair price to pay for getting millions of unemployed Europeans back to work. By Carol Matlack in Paris, with David Fairlamb and Gail Edmondson in Frankfurt, and bureau reports