Europeans Go Back To Work.(World Affairs)(labor reform)

Byline: Stefan Theil

A decade of labor reform is finally paying off, but now the politicians want to turn back the clock.

FLASHBACK TO WESTERN EUROPE, CIRCA 1994. IT'S THE ERA OF "EUROSCLEROSIS"--a chronic malaise of anemic growth, high unemployment and a political class in deep denial about the continent's problems. The EU's official jobless rate was 10.5 percent, versus only 6.1 percent in the United States and 2.9 percent in Japan. The "official" numbers didn't even include tens of millions of Europeans who'd dropped out of the work force

altogether, or were sloshing around in the continent's vast labyrinth of government make-work and often useless re-education programs. In its 1994 Jobs Report, an alarmed OECD warned that Europe's mass unemployment threatened to "unravel the social fabric [and undermine] the authority of the democratic system."

You'd have been called insane then to predict that one day Europe would create jobs far faster than America and be close to eliminating mass unemployment. Yet thanks to what Allianz chief economist Michael Heise calls Europe's "jobs miracle," that is precisely what's been happening. As a result of a decade of labor reform, wage moderation and booming markets for its products, the EU has created 17 million jobs since 2000, outpacing the United States over the same period. Even the economic downturn emanating from the United States hasn't stemmed the tide. Despite the World Bank's slashing of its 2008 eurozone growth forecast from 2.8 to 1.7 percent, Europe is still churning out jobs. According to last week's Employment Outlook Survey by Manpower, employers in the four biggest EU economies--Germany, France, Italy and Britain--say they expect to keep up their pace of hiring through the third quarter, while U.S. and Japanese companies are cutting back. At 6.7 percent, Europe's jobless rate is now the lowest it's been in a quarter century, and barely 1 point higher than America's 5.5. "I'm shocked," says Michael Burda, an American economist at Berlin's Humboldt University who remembers the 1990s. "All my students are getting jobs."

All this has happened while masses of new workers--women, older people, the previously discouraged--have been flooding the job market, raising the labor-participation rate from just 61 percent of working-age Europeans in 1994 to almost 70 percent today. By all accounts, Europe's biggest and most intractable social and economic scourge on its way to defeat.

You might think Europeans would be rejoicing--and politicians falling over themselves to take credit for the turnaround--but you'd be wrong. A wave of discontent has spread across Europe. In many countries, the reforms that helped kick-start the jobs miracle have been put on hold or reversed. In Germany, Chancellor Angela Merkel's coalition government has not only frozen economic reform but has begun to reregulate the labor market with new minimum ...