Despite deep job cuts in Europe, worst is yet to come

November 12, 1992|By Bloomberg Business News

LONDON -- Industrial groups throughout Western Europe have been cutting jobs this year and are expected to slash even more next year.

Sluggish consumer demand is the main factor, but high labor costs are also forcing layoffs, particularly in Germany and Italy.

Job-reduction programs planned this year include 30,000 coal-mining jobs in Britain. In Italy, 38,500 of Fiat's 115,000 autoworkers will be temporarily laid off this month. In France, three aerospace companies have announced job cuts totaling 3,645.

"We've only just seen the beginning," said Roland Berger, a German corporate consultant. "The tidal wave of job reductions is going to sweep over us yet."

According to the Organization for Economic Cooperation and Development, Western European unemployment will rise next year by 1.3 million, or 9 percent, to 15.7 million, from 14.4 million for 1992.

And even if the economy picks up, the OECD said, unemployment will not decline, because productivity gains will ensure that employment will grow more slowly than the available work force.

Germany's economy, Europe's largest, is just entering a slowdown, Mr. Berger said. Of 20,000 companies polled by the German industrial association DIHT in its autumn survey, 32 percent said they would cut jobs in 1993, compared with 19 percent who said so a year ago.

For example, Mercedes-Benz AG said it plans to trim 20,000 from its 185,000-member work force by the end of next year.

In Italy, the government's 1993 austerity budget is expected to squeeze growth out of retailing, the only area of the economy to recruit last year. The rest of Italian industry has been cutting jobs since 1989.

Last week, the Paris Chamber of Commerce predicted that French unemployment would rise to 11 percent next year, from the current 10.3 percent.

The main factor behind growing unemployment is sluggish growth. According to Merrill Lynch & Co., the consensus forecast is for Germany's economy to grow a modest 1.1 percent this year and 1.8 percent next year. That compares with a robust 3.6 percent in 1991.

Economists say Italy could face a recession next year.

An additional impetus for job losses in Germany and Italy has come from rising wage costs and the resultant decline in worker productivity.

"Our productivity lead has melted away over the past years; German goods and German workers are simply too expensive," said Hermann Franz, a member of the board of the electronics maker Siemens AG. "It's simply a question of slashing some jobs to save the others or losing the competition battle in the world markets altogether."

According to a study by the German industrial association BDI, the average productivity of a German industrial plant is 25 percent below the average for Japan, 12 percent below that of the United States and 11 percent below France's.

According to a study by the Kieler Institut fuer Weltwirtschaft, up to 320,000 jobs in Germany have been lost in the past five years.

In Italy, high taxes are encouraging employers to cut jobs. Social security and health insurance charges can amount to more than half of a worker's salary.

"Companies try everything not to take on new workers because they don't want to take on more costs," said Rosa Soler, an economist at Euromobiliare in Milan.

Attempts by national governments to stem growing unemployment have failed.

Last April, when Pierre Beregovoy took office as prime minister of France, he said the government would make the fight against unemployment a top priority.

Mr. Beregovoy pledged that the government would find jobs, training or useful social activities for all of the country's 900,000 long-term unemployed by the end of October.

That deadline has passed with little evidence that the plan reducedunemployment, although analysts said that it might have helped slow the rise in the number of unemployed.

"There has been a slight fall in the long-term unemployed in recent months, but it has had a negligible effect on overall unemployment because of new people coming onto the register," said Reza Lahidji, an economist at Banque Indosuez.

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