On occasion, a few simple statistics summarize a dramatic story: in the United States in the decade of the 1970s, nine out of every 10 persons looking for jobs found them. But in Europe, in the same 10-year span, less than three new jobs were available for every 10 who sought them.
The overall result is that despite some slow growth years in the 1970s, there were some 17 million new jobs created in the United States. But in Europe over the same period, the net increase in jobs was only one million.
In all probability, the resultant unemployment problem in Europe is even worse than the numbers show, since the labor force in Europe grew by only 4 million in the decade (to 96 million), while the U.S. labor force expanded by 20 million (to 103 million) in the same period. That suggests that enormous numbers of European teenagers and adults were so discouraged that they quit looking for jobs, and left the labor force.
These grim facts about the European economy have been assembled in the latest Organization for Economic Cooperation and Development report on the economic outlook of the industrial world, published July 7. The economic staff at OECD, in a much gloomier assessment than just six months ago, anticipates that Europe may see an official unemployment rate of 10.5 percent next year. The rate has increased every year since 1974, and is at the highest figure since the 1950s.
Employment fell faster last year than actual production levels, with the result that labor productivity showed some gains--especially in Great Britain. This trend may continue a while longer, but doesn't solve basic problems.
"Europe is suffering from the lack of profitability of private investment," an OECD official told me a few weeks ago in Paris. "Not only have labor costs been too high, but there are the non-wage costs, such as social welfare."
As of now, one-third of the jobless in Europe have been out of work for six months or more, an absolutely shocking total. In Britain, 52 percent of the unemployed in early 1982 had been out of work for six months, compared with 39 percent a year earlier. That's a festering sore that could lead to social unrest and worse.
That kind of protracted long-term unemployment is unknown in the United States. In fact, the U.S. definition of "long-term unemployment" has traditionally been 15 weeks--not six months. But the proportions of those out of work here for more than brief periods--measured either by 15 weeks or 27 weeks--have been growing at an uncomfortable rate.
In June, when the jobless rate as reported by the U.S. Bureau of Labor Statistics was 9.5 percent, 17.3 percent of the unemployed had been out of work for 27 weeks or more, short of the 21 percent post-World War II record set in 1975 and 1976. That's a worrisome level, but still well below the horrible one-third ratio the Europeans must contend with.
Reasons for the European sickness are many and complex. But between the cautious lines of the OECD report, one can see the combined effects of high interest rates that discourage investment, high taxes on employers to support welfare states, and labor union rigidities that prevent modernization and efficient operation.
On the wage-cost side, there's a glimmer of hope, but not yet too much, in the wage-moderation pattern set in the United States, Japan and West Germany.
Throughout Europe--despite sophistication here and there in electronics and high-technology--plants in the old-line industries are antiquated, and governments tend to take the easy political way out by going protectionist, which only exacerbates the decaying process.
For a while, at least through the 1960s, the declining ability of European industry to compete in world markets was disguised by brisk economic growth and fairly modest inflation. But the two oil shocks exposed all of Europe's weaknesses and rigidities.
"Economic performance would possibly have deteriorated even without the two oil price shocks," says the OECD report. "But coming on top of the underlying situation, they imposed enormous strains on OECD economies, necessitating a degree and pace of adaptation that severely challenged the capability of the OECD economic system."
What Europe desperately needs is an infusion of investment that will modernize plants and add to its ability to compete in world markets, thus providing jobs in home markets. But investment, as the report points out, depends on that fragile commodity called "business confidence" as well as the specific outlook in a given activity.
"It is not clear how best to foster expectations of an adequate return to investment," the report notes in a tone of near desperation. Normally, in a time of recession, an attempt would have been made to stimulate consumer demand, through tax cuts and other Keynesian methods. But that's been ruled out in the belief it would only add to government deficits and reignite inflationary expectations--thus inhibiting rather than increasing investment.
Instead, Europe is wallowing in despair, fearful that rising unemployment will increase the social strains and boost protectionist forces. Its resentment over American interference with East-West trade is based on the desperate need for any export volume that sustains employment.
Recovery next year is expected to be weak--certainly not strong enough to reverse the eight-year rising trend for unemployment. Even "a return to full-capacity use (of industrial plants) would not lead to a complete absorption of labor market slack," the OECD report observes.
It's easy to see why Europeans pray for a decline in American interest rates that would allow their own to go down, perhaps stimulating investment.
But that's not a panacea, either: several European countries still face the technical superiority of industry in Japan and the United State, along with a growing challenge from the so-called "NICs"--the newly industrializing countries like Korea, Brazil, and the Association of Southeast Asian Nations. Without some major changes, Europe may be over the hill.