How Europe can get back to work

Updated: 2012-01-30 07:58

By Klaus F. Zimmermann (China Daily)

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Beyond the shadow of a doubt, the reform of labor markets is ultimately the most critical part of the reform process, in the eurozone and across the European Union(EU). Only successful measures in this arena can bring about a lasting, future-oriented turnaround for Europe. The European heads of state have a much-needed opportunity to focus their Jan 30 summit meeting on strategies to reduce unemployment.

While the goal is clear - growth must be stimulated everywhere and unemployment must be brought down - we must resist the temptation to believe that there is any one-size-fits-all solution. Far from it. Each country can, and each country must, develop its own strategy for labor market reform. Each country, not Brussels or anybody else, is thus in charge of its own destiny. That is so for a very simple reason. Labor market conditions, requirements, options and challenges differ from one country to the next, often significantly.

Some countries have a very high share of services in their national economy, and thus depend greatly on domestic demand. Others rely heavily on exports and must prepare themselves from possible slowdowns on that front. Then there are also those who still have to evolve from an over-reliance on agrarian structures. Yet again others must focus especially on reducing dramatic levels of youth unemployment.

But even countries where unemployment is already quite low, such as Germany, have to contend with serious challenges. A shrinking workforce and pressures on social security systems suggest incentives to postpone the retirement age and doing much more to integrate women into the labor force.

The latter is an area where France and the Scandinavian countries have provided impressive examples of how to get it right.

And while there is no role for the European Commission in Brussels to prescribe any specific, possibly even uniform path of reform, there is a useful role the Commission can play. It should monitor and incentivize countries' progress on labor market liberalization and the creation of new jobs.

Incentivizing positive change would be a truly constructive use of the Commission's monitoring capabilities. The current mindset - obsessing about countries' budgetary performance and imposing penalties on countries that already find themselves in grave difficulties fiscally - is bound to be counter-productive.

Specifically, the European Commission can strengthen labor mobility across Europe by fostering collaborations between the national labor offices to exchange information about job openings and interested workers and create the very much needed European online job market. A much stronger labor mobility of European workers is key to creating additional growth by reducing the waste of human resources. Similarly, we Europeans may speak a total of 23 official languages within the EU, but that should not keep us from doing much more to recognize professional training certificates in a far more open-minded fashion across borders.

Here, Germany may become an early center of attention and reform. Because of sustained economic growth, the German labor market is moving toward full employment. With the gradual decline in the country's total population, the odds are that there will be more jobs to fill in Germany in the future than there are new labor market entrants each year. At the same time, the Germans have been on the forefront of those concerns about new employees having the "proper" training certificates.

I cannot imagine that, in a labor market of 500 million people, with many young people without a job, German employers could not find good personnel in other countries. In the age of social media and Skype, it is not too difficult to screen for talent even over long distances. Over the medium term, that is a far more productive HR strategy for large firms than the practice they are now beginning to engage in, trying to use headhunters to poach young professionals, who are only just into their first job, from one another. The latter is truly a zero sum game.

Being more open-minded and cross-border oriented would also be a powerful stepping stone toward the eventual creation of more dynamic economies in migrants' home countries. Take the example of Turkey. While the country is not even a member of the EU and the language barrier is certainly profound, it has become a very attractive manufacturing economy. A key part of the new-found dynamism rests on the skills transfer of Turkish workers who used to work in Germany before returning home and starting up small businesses. It should go without saying that the 27 members of the EU could do for one another what Germany and Turkey have done together over the past several decades, without any government planning.

An honest accounting especially of northern Europe's needs and responsibilities would also lead us to think very differently about Northern Africa, especially university graduates from Tunisia or Egypt. We talk a lot about the rapid aging in Europe, meanwhile the average age in Egypt is 24 years and 29.7 in Tunisia. If the Turkish example has demonstrated one thing, it is that both sides can benefit, even in unexpected ways, from the exchange process. This example teaches us that we must open our eyes to the potential. That strategies to meet our labor market needs also align quite neatly with the EU's foreign policy strategy certainly does not hurt.

The author is director, IZA, Institute for the Study of Labor, Bonn, Germany

(China Daily 01/30/2012 page9)