Wanted: Jobs

Elena Guenes, a 36-year-old employee at DZ Bank in Stuttgart, guessed what
was coming when the bank’s personnel director summoned her to a meeting early
last summer. Her job, answering calls to the bank’s investor hotline, was
being eliminated as the bank reorganized after a merger. Since cashing her final
paycheck last July, Guenes has applied for more than 50 jobs but remains
unemployed. "When you open the newspaper, there are hardly any job
offers," she says.

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 US 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 Télécom
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 workforce, 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
Commerz-bank, where chairman Klaus-Peter Müller, 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 Schröder 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 Schröder
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 in BusinessWeek. Copyright 2003 by The McGraw-Hill Companies, Inc