Monday, April 11, 2005

High EU labour costs a drag on growth, and well above those of US.

The Eurozone is going to have to accept that labour reform, and cutting back on welfare are essential to solving the problems of structural unemployment, stagnant growth, and the relocation of businesses to more competitive, and, often non-EU countries.

Despite this it appears that Germany is still attempting to protect its labour market with measures that are likely to have the opposite effect of much needed fundamental reform.
Schroeder & Germany ready to launch minimum wage reports the FT -

The German government will this week consider a series of measures to fight a downward spiral in wages, including setting a minimum wage for the most vulnerable sectors of the economy. The step is part of a crackdown on businesses that use cheap, often eastern European, labour to trim their costs. When they joined the European Union a year ago, the 10 new member states agreed to a moratorium preventing their citizens from seeking work in Germany for several years.

A joint task force of the finance and economics ministries on the "fight against abuses of the freedom of services" will report to the cabinet on Wednesday and outline a series of proposals.

Effectively barring selected businesses from hiring cheap foreign workers, meanwhile, would not necessarily lead them to hire Germans.

Despite record unemployment, the Federal Labour Agencies last year issued 870,000 authorisations for companies to seek foreign workers for jobs that could not be filled by Germans
One of the greatest abuses of the "freedom of services" is the restriction Germany, and others, have put on the new EU member states to supply services, not to mention that most fundamental of EU freedoms, the freedom to work anywhere in the EU .....

...... to return to the subject. The FT today also reports on a survey on the cost of labour in EU Europe. Not surprisingly it is countries like Germany that are hugely uncompetitive - See Labour costs in the EU
Employment costs in the EU as a whole were about 15 per cent less than in the US, but after taking eastern EU countries out of the equation western European countries were 23 per cent more expensive than in the US and among the highest in the world said Mercer.

The highest annual employment costs according to the European study were in Belgium, Sweden and Germany where the total financial burden of employing a worker, including benefit costs, was more than €50,000 ($58,500) a year. This compared with €4,752 in Latvia; €5,649 in Lithuania; €8,257 in Poland and $9,540 in the Czech Republic.
Annual labour costs of €45,879 in France and €46,541 in the UK were in line with Japanese costs of €45,839 but almost 40 per cent higher than US costs of €33,195. Chinese and Indian labour costs of €13,884 and €2,024, respectively, were even more competitive said the study.
Agreed the weak US$ / strong €uro makes a difference to any comparisons with the US, nevertheless, the failure to reform is going to hold back the EU and the Eurozone in particular. No doubt there are those in the European Commission who believe that such reform could put the whole project at risk so dare not push it too hard. Decisive and bold leadership are often unpopular but it is what the EU needs if it is to make its collective economy work.

It says much about the nature of the EU and just how insecure and fragile it really is that anything that might upset the Social Model, in one or more of the larger member states, tends to get watered down and/or shelved. It is time Europe's political leaders woke up to the fact that the era of "sozialmarktwirtschaftwander" is over instead of sticking their heads in the sand.