Lille, France, April 1996
from The Jobs Letter No.37 / 19 April 1996
The Group of Seven of the world's richest Industrial countries the US, Japan, Germany, France, Italy, Canada and the UK met earlier this month in France to talk about jobs and employment growth. The meeting was called by French President Chirac who invited all the G7 finance and employment ministers to Lille, one of France's more notorious unemployment black spots. The French Finance Minister naturally turned up but the rest of the G7 ministers sent their excuses, and their deputies.
While the "no-show" of Ministers may seem an insult to the 23 million unemployed citizens of the G7 countries, but the "apologies", some at the last minute, were part of a philosophical dispute between the US and UK "hire and fire mentality" of job creation, and the European wish to continue their more generous measures of worker protection.
Since the last G7 jobs summit in Detroit in 1994, most European dole queues have grown with spectacular rises in France and Germany. This made a mockery of the Detroit Summit's formal target, adopted by the European Union, of halving its unemployment to 5 per cent by 2000. But outside Britain, European leaders still hope not to have to choose between worker protection and job creation.
President Chirac has appealed for a "third way" between America's harsh but efficient world of work and Europe's cushioned workers. The "no-show" Ministers were concerned that they would be embarrassed by French calls for greater government spending on public works. To quote the Times, of London, their non-attendance was "...a tacit majority vote for the proposition that the best route to creating jobs is less, not more, government spending."
At the Summit, Jacques Santer, the European Commission President, proposed a European "confidence pact" on jobs which would include "passive and active labour market policies", drawn up in consultation with Europe's "social partners" (unions and community sectors). Santer insists that those who find it difficult to adapt to change and global competition must on no account experience "greater insecurity in their living and working conditions and their incomes". He wants co-ordinated EU policies in order "to prevent one country gaining at the expense of another", and suggests spending on "new initiatives" widely interpreted as a call to spend this year's EU's budget surplus on public works.
Employment in Europe is a far cry from the Anglo `free-market' economies of the US, Britain, Canada, Australia and New Zealand. In the `interventionist' European states, unions are still a force to be reckoned with, minimum wages are kept high, and most workers have generous redundancy provisions which insulate them from the more brutal effects of 1990's `enterprise' business culture.
Yet these benefits may also be the clogging the European economic arteries. Time Magazine this week calls it "Eurosclerosis" defined as "... the combination of a staggering tax burden and a blanket of regulations that smother new businesses and entrepreneurship."
Comparisons: Europe's unemployment rate of 11% is twice as high as the US's. Over the past three years, the US has created 8.4 million new jobs, Europe none. Significantly, Time magazine reports that many of those new American jobs pay higher than average wages, and as many as 60% are managerial or professional.
In Spain, laid-off workers are entitled to 45 days' pay for each year of service. Two weeks is typical for the US. Time: "Firing workers is so pricey that employers are reluctant to hire them in the first place. So Spain pays for its kindness with a jobless rate of more than 20%, Europe's highest..."
Germany provides one of the top manufacturing pay-packets in the world ($32 an hour, including fringe benefits), But one of the factors of its rising joblessness, at 11.1% and the highest since World War II, is that investment is moving to lower-wage cost countries.
Non-wage (health and social security) costs in Britain are much lower than elsewhere in Europe, making it an increasingly attractive place for international firms. For every £100 spent on wages, a British firm has to spend £18 on non-wage charges. This compares with £32 in Germany, £41 in France and £44 in Italy.
France pays an $US8-an-hour minimum wage-rate compared to America's $US4.25. And in Europe, as here in NZ, the relationship between minimum pay-rates and joblessness is a main feature of employment debates.
The head of the International Labour Organisation warns that rich nations who are seeking a cure for unemployment risk unleashing resentment among their voters if they roll back welfare provisions, and lower minimum employment conditions in order to create jobs. ILO Director-General Michael Hansenne said that such measures would "... impose an intolerable burden of insecurity on workers, aggravate inequalities, and breed social resentment." His prescription: more flexible work time, limits on overtime, and a greater emphasis on life-long training in order to reduce insecurity.
Britain used the occasion of the Summit to trumpet its own recent success story of job creation in the face of other European stagnation. Gillian Shephard, the Employment and Education Secretary, says that Britain is "forging ahead" of the rest of Europe on jobs, with unemployment in the UK down by 750,000 since 1992. Shepherd: "Jobs are being created in Britain, because the right conditions exist for companies to flourish." British Treasury officials believe that the Government's reforms of the UK labour market will allow the UK unemployment rate to fall still further from its present 7.9%, to perhaps below 6%, without fuelling inflation.
The British `success' story however comes with warnings from the OECD of the social impact of people being excluded from the economy in Britain.
And Tony Blair, the British Labour leader, is casting doubt on Britain's jobs record by warning of "rampant insecurity", with more than ten million people in Britain experiencing at least one spell of unemployment since the 1992 election. Padraig Flynn, the European Employment Commissioner, said figures showing falling unemployment in Britain had to be set against "negative" factors such as the shrinking size of the British workforce.
John Monks, TUC general secretary and author of the report The Myth of Job Creation in Britain, said the reason that unemployment was low had as much to do with older men withdrawing from the labour market as any boost to Britain's economic performance.
Amidst criticisms that the changing job market was leading to greater insecurity of employment, the US is promoting a new policy concept of "security of employability", defined as "... people having confidence in being hired again even if they lose their jobs."
Joseph Stizlitz, chairman of President Clinton's council of economic advisers, told the G7 Summit that people could no longer be guaranteed security of employment. Instead, he put forward the idea of "security of employability", based "giving people the skills and retraining opportunities needed to allow them to change jobs."
Europe's largest economy, Germany, has seen a flood of `jobs alliances' in recent months where unions have agreed to relax working practices and swallow low pay deals in order to reduce layoffs. These measures may not stop German politicians looking at reducing other non-wage labour costs such as employer's social security contributions, pensions, and health insurance. Critics say these protections are discouraging German businesses from hiring workers, raising costs and making them uncompetitive in a global marketplace. They say that such non-wage labour costs along with barriers to cutting workforces when times are tough have stifled the development of a strong service sector in the economy, the sector which has been the motor of new job creation in the US, providing 85% of new jobs.
At the Lille Summit, President Chirac promoted the "social clause" proposal which would be attached to trade treaties, and would require trading countries to observe certain workers' rights. The "social clause" would include four main principles for workers and employment: freedom of association, the right for unions to organise and bargain collectively, an end to child and forced labour and to discrimination at work.
Arguing that people found "more or less disguised" forms of "adult or child slavery" intolerable, Chirac said: "We should all become aware that liberalisation of trade, development of employment and respect for a number of universal rules cannot be dissociated." If there was to be a greater freedom of trade, "a few basic rules" had to be applied to guarantee people's dignity.
This was a major contentious point, with Britain, Canada, the US, Germany and Japan opposing the linking of these employment standards to international trade agreements.
Padraig Flynn, the Social Affairs and Employment Commissioner, told the G7 Summit that the issue of a link between trade agreements and minimum employment standards "must be faced and talked about. It simply cannot be ducked or avoided. European public opinion would not find that credible." Flynn insisted that social standards should be established, and proposed that the World Trade Organisation, the successor to GATT, should consider setting up ways to introduce them at its conference in Singapore at the end of the year. Flynn: "The social standards are not a `threat to competitiveness' but will in the long term strengthen the economic performance of all countries which apply those standards..."
Robert Reich, the US Labour Secretary, used the occasion of the G7 Summit to promote his ideas of "the mutual gains and responsibilities" of the private sector taking steps which may not immediately help its own bottom line, but will benefit people and society more generally. Reich is also recommending tax breaks for companies which train, retrain and share their profits with their workers.
Reich has clashed repeatedly with his US cabinet colleagues over worker protection measures and his desire to raise the US minimum wages. Rumours reported at the G7 Summit were that he is not wanting to remain in office is President Clinton is re-elected in November.
Concrete proposals to fight joblessness were noticeably thin on the ground of this G7 Summit. French Finance Minister M Arthuis says that "... our overwhelming belief is that globalisation and new technology will create new opportunities for jobs." In the meantime, European officials were left to simply "talk up confidence", saying that trade liberalisation and new technologies promised a long period of growth if countries "...know how to adapt."
From an editorial in Wellington's The Dominion: " The G7 Ministers pin their hopes on trade liberalisation, new technology and forecasts of slow but steady growth ignoring that to make the most of them they must deregulate their labour markets and make their economies more flexible. But most lack the political will to do what is necessary: reduce welfare spending, cut taxes, set benefits at levels to ensure that it pays to have a job, introduce enterprise bargaining, lower the non-wage costs of employment, and implement training adapted to the job market..."
Sources - The Times (London) 29 March 1996 "Jobs Summit Back to the UK approach" and "Analysis: A lesson from
Britain in cutting unemployment"