Amongst union leaders, Europe is the preferred benchmark for labour laws. Whether it be a protected role for unions, collective bargaining, minimum wages, holidays, dismissals laws, parental or carer leave, worker consultation or dismissal laws, Europe is seen as setting the pace.
Although we hear quite a bit about the generous working conditions of European workers, we hear little about their wider effects.
A recent study by the Centre for European Policy Studies shows why, and the news is not good, particularly for those Europeans at the margins of the work force.
The study found that while labour productivity -- which in the long run is the main determinant of wage rates -- has grown markedly in the US and Australia over the last decade, it has been stagnant in Europe. Indeed, over the last five years, labour productivity has actually shrunk across the European Union (EU). Total factor productivity -- which measures the combined output of land, labour and capital -- has also stagnated in Europe.
What this means is that the Australian and US economies can now grow at about 1.5 percentage points (sixty per cent) per year faster than the EU without igniting inflation and higher interest rates. It also means that, over the medium term, US and Australia can expect to find jobs for the thousands of people entering the work force each year, while there is little scope for job-creation in Europe.
Over the last five years, there has been an apparent improvement in the employment record in many EU member states. However, upon closer examination, the record is not as good as first appears. First, the recent improvement comes from a very low base in the early 1990s, when unemployment averaged around 12 per cent across the EU. Second, 85 per cent of employment growth over the last five years in Europe has been in part-time or temporary jobs. Third, there are already signs of employment growth slowing, with unemployment still averaging between 8 to 9 per cent in most countries. Fourth, the jobs have been highly concentrated amongst men in the prime 24-54 age group. Indeed, unemployment amongst prime-aged men is virtually zero in Europe. People on the margins of the workforce, however, including the young, women and older workers, have experienced only marginally better employment prospects, and much worse than those found in Australia.
The reasons for Europe's limited capacity to grow and its poor employment record are its labour regulations. Europe employment protection laws are some 15 times tougher than those in the US and much tougher than those in Australia. Thus, firms in Europe are reluctant to hire new workers. Pay-roll taxes, which are used to fund workers' compensation and unemployment, are imposed at rates exceeding 20 per cent in many of the countries on the continent. Minimum wages are high. And unions shops and compulsory collective bargaining are still the norm.
European leaders recognise that their labour laws are holding them back. Indeed, they recently agreed to a wide-ranging reform agenda. Progress is, however, proving to be difficult.
In short, Europe's problem are the very same things that local unions seek to adopt downunder and should be avoided.
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