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From: Tom Patterson <[EMAIL PROTECTED]>
Subject: New Era of European Contingent Labor(fwd)
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The Wall Street Journal Interactive Edition -- June 4,
1998
Europe Firms Lift Unemployment
By Laying Off Unneeded Workers
By HELENE COOPER and THOMAS KAMM=20
Staff Reporters of THE WALL STREET JOURNAL
LINKOPING, Sweden -- Making aircraft engines one week
and microwave ovens the next, Mikael Lindberg is helping
deregulate Europe's labor markets.
"You can change your profession every month," says Mr. Lindberg, a=20
31-year-old resident of Sweden's industrial heartland.
=20
The Saab Aircraft unit of Investor AB and telecom firm Telefon AB L.M.=20
Ericsson are enthusiastic, too. Both have signed up to "share" Mr.
Lindberg whenever they need him. More important, they can let him go
whenever they don't need him -- without a pink slip, severance bonus or
headaches from a labor union.=20
"Whether unions and leftists like it or not," the European market "has
imposed its own balance," says Jonathan Chait, chairman of Manpower
Europe, the fast-growing temporary-job unit of Manpower Inc. of the U.S.=20
A Preference for Renting
Jan Herin, chief economist at the Swedish employers' confederation, is
even blunter. "It's much easier to rent employees," he says, "than to hire
them."=20
After decades of watching tough labor laws and rigid regulations leave
European companies running well behind rivals in the U.S., Europe has
adopted the obvious solution: labor flexibility. Not only are temp
agencies booming, but many governments are allowing companies to hire
workers on short-term contracts. And employers are leading a quiet
revolution to improve Europe's competitiveness.=20
Aided by more-relaxed labor laws, some European countries are registering
a net increase in jobs for the first time in more than a decade. In the
past, many companies have avoided adding workers, even in good times,
because it was so difficult and expensive to dismiss them when business
slowed.=20
The Big Gainers
Countries that have done the most to ease rigidities have, not
coincidentally, added the most new jobs: Since 1994, employment is up 6.2%
in Spain, 6.9% in the Netherlands and 4% in Britain.=20
In Germany, by contrast, employment shrank 3.3% between 1994 and 1997. The
country, with more restrictive labor laws, has been slow to jump on the
temp-worker bandwagon. But Manpower Europe's Mr. Chait says things are
starting to change; more German companies, wary of hiring workers who
could be difficult to fire, are going for temps. Although France has made
major strides toward labor-market flexibility, employment there has grown
only 1.3% since 1994. And Italy was the last to legalize temp agencies,
acting only last year; but Manpower plans to open 35 offices in Italy this
year.=20
The European Union's overall unemployment rate, while down from its peak,
still stands at 11.5% of the labor force, more than double the U.S. rate.
Even though most European countries count temp workers as employed, total
jobs in the EU have grown only 1.8% since 1994, after shrinking 3.4% from
1991 to 1994, according to the Organization for Economic Cooperation and
Development.=20
Labor laws remain tougher on the Continent than in the U.S. or Britain.
Some union members still complain that the notion of expendable workers is
alien to European labor relations. Many of those holding temporary or
part-time jobs say they would much rather have full-time jobs, if they
could find them. In fact, the temp boom has spawned a dual labor market,
split between full-time workers and the temps or part-timers. "The Europe
of job security is a joke for many Europeans," says Jose Juan Ruiz, a
Banco Santander economist in Madrid.=20
A Booming Business
But Manpower, Randstad Holding NV of the Netherlands, and the Franco-Swiss
Adecco SA are some of Europe's fastest-growing companies. By taking
advantage of legal loopholes, temp companies are helping employers by
providing "long-term temporary help" -- workers who can be fired at will.=
=20
Aggressive rule-skirting isn't limited to temp agencies, however. Though
telecommunications deregulation officially didn't start until Jan. 1, a
legion of small start-ups offering "call back" services enabled Europeans
to make ever-cheaper international phone calls for several years. And
mail-order pharmaceutical companies are undercutting national laws that
set monopolistic drug prices.=20
In essence, European companies are pushing Europe toward deregulation much
as American corporate titans led the way to deregulate America a decade
ago. And nowhere is this trend more evident than in Europe's labor market,
which is now seeing its biggest-ever rise in temporary work and short-term
contracts.=20
Europe's temp market is growing more than 10% a year. The U.S. is the
world's biggest market for temporary workers, with about 40% of the temp
market, but who would have guessed that the second biggest is supposedly
rigid France, which accounts for 30% of the world-wide market and last
year generated 31% of Manpower's world-wide revenue of $8.9 billion? Which
country has the biggest proportion of temp workers in its labor force?
Adecco says it's the Netherlands, where 3.2% of the workers are temps,
compared with 2.2% in the U.S. and 1.9% in Britain. And which country is
driving the growth of temp agencies? Spain, where Manpower's 1997 revenue
surged 719% in dollar terms to $50 million from $6.1 million in 1996.=20
It had to happen. Europe generally has some of the world's strictest
worker-protection laws, which regulate when people can work and how much
vacation they get. Companies must go through contortions to lay anyone
off. Jokes Antonio Puerta Munoz, chairman of Tiendas Aurgi, Aurgi SL's 850
employee chain of Spanish auto-repair centers: "We can divorce from our
husbands and wives, but we can't divorce from our employees."=20
But breaking up is becoming easier. Last year, Spanish employers and
unions agreed to new regulations that reduce severance pay to 33 days per
year worked from 45 days, in return for lengthening the duration of labor
contracts for first-time hires and people who had been among the long-term
unemployed.=20
In France, Labor Minister Martine Aubry notes that "86% of new hires are
on short-term contracts," usually for six months, renewable once, and they
frequently have to work nights and weekends. She adds: "You can fire
without prior authorization. You can hire as you wish. France is already
flexible. Sure, there can always be greater flexibility in companies. But
the law doesn't prevent it."=20
Swedish Labor Relations
Even Sweden, long the epitome of the welfare state, is seeing an
unofficial loosening of the old order. Swedish executives, after long
complaining bitterly about organized labor, are cozying up to local unions
to cut local deals despite the national unions. Nowadays, "you have to
look pretty hard to catch a CEO talking bad about his local chapter," says
Anders Lindner, the head of Timbro, a Swedish free-enterprise foundation.
"The local chapters are much more progressive than the national -- so they
make deals under the table with the companies."=20
The companies are being creative in other ways, too. Thomas Nygren spent
eight years here in Linkoping, a heavy-industry city 112 miles west of
Stockholm, first running Saab's planning office and then, for five years,
the personnel department. In this area, about 1,000 companies employ
40,000 people making such things as nuclear turbines, tractor-trailers and
aircraft engines. In the 1980s, massive layoffs in the region led to
double-digit unemployment rates, and just a year ago, the rate was still
10.4%; today, it is 8.3%.=20
The ebb and flow of assembly-line work irked Mr. Nygren: "Sometimes, we
needed a lot of people and would have loved to borrow workers from
Ericsson. And sometimes, we had too many workers."=20
About a year and a half ago, Mr. Nygren got an idea: If area manufacturers
got together and formed a labor pool, they could pluck workers out of it
whenever they needed them and give them back when they didn't. Mr. Nygren
took his plan to 10 big companies, including Saab, ABB and Ericsson.
Within a few months, he left Saab to start Industrie Kompetens, a sort of
temp agency for engineers, skilled technicians and assembly-line workers.=
=20
One of the agency's temps is Niclas Arkstal, 33, a technician who has
assembled air conditioners for NAF AB; and telephones for Ericsson. At
both, he says, he became bored after a while. Joining Industrie Kompetens
was the perfect tonic. "It's so flexible," he says. "I don't worry about
boredom anymore."=20
Lingering Resistance
However, many European workers still consider "flexibility" a dirty word,
and even some employers, while saying they want more of it, don't like the
idea of temps and short-term workers. "If you have a six-month contract,
you spend your last month wondering whether it will be renewed," says
Tiendas Aurgi's Mr. Puerta Munoz. "It's torture for an employee."=20
Some European employers are even using rigidity as a selling point to
attract workers. Alejandro Rivas, managing director of RSL Communications
Spain SA, a small telecom company that is controlled by U.S. cosmetics
heir Ronald Lauder and is trying to enter newly deregulated European
markets, says: "We use the fact that we hire people under full-time
contracts as an argument. People jump at that."=20
But for all the complaints, European companies are unquestionably on the
temp-job bandwagon for good. Moulinex SA, a French household-appliances
maker, illustrates how temp work is being used to get around French labor
laws -- and how flexible the laws are. Two years ago, Chairman Pierre
Blayau's decision to close two French plants and cut 2,700 jobs out of an
11,300-employee work force led to the predictable protests and spats with
the then-conservative government.=20
Today, after five years of net losses, Moulinex is back in the black; in
the fiscal year ended March 31, 1997, it earned $5.5 million, and it is
expected to report a profit for fiscal 1998. In addition, Moulinex has cut
the workweek of its remaining employees to 33 hours from 39 with almost no
loss in pay in return for greater flexibility in working hours. And
practically all the laid-off workers have found new jobs or were put on
early retirement. At times, Moulinex has had as many as 1,000 temps
churning out appliances.=20
Why cut permanent workers and then take on temps? Mr. Blayau explains that
many of the company's products are seasonal and that it doesn't want to go
through staff cutbacks again. "In France, we are afraid of hiring
full-time workers," he says. "Once you feel that you have readjusted the
company, you are cautious. You think, 'If I lose an order, I have to start
the whole process over again.' We don't want to do this every six months."=
=20
But Mr. Blayau says Moulinex also shows that if a company needs to cut
staff in France, it can. And though the process is lengthy, he says it
forces the employer to give persuasive arguments to its workers and the
government. This also helps it in financial markets because securities
analysts like the additional information coming from the company.=20
And, he adds, the cut in the workweek helped to reorganize production
methods and adapt working hours to demand. In some Moulinex factories, for
example, employees worked only 24 hours to 28 hours a week from January to
March, but in last year's peak months, before Christmas and when the
summer was approaching, they worked 42 hours a week, including occasional
Saturdays and Sundays.=20
"The European system is more constraining than the Anglo-Saxon one, but if
you use it correctly, there's more flexibility than people think," he
says.=20
Copyright =A9 1998 Dow Jones & Company, Inc. All Rights Reserved.=20
=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=
=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D
--
Michael Perelman
Economics Department
California State University
Chico, CA 95929
Tel. 530-898-5321
E-Mail [EMAIL PROTECTED]
