WSJ, Aug. 8, 2002 Europe's Prized Leisure Life Becomes Economic Obstacle
By CHRISTOPHER RHOADS Staff Reporter of THE WALL STREET JOURNAL ESSLINGEN, Germany -- Uwe Lang can't say he feels burned out as he embarks on the first of two three-week vacations he's planned this year. The 34-year-old supervisor at Eberspaecher AG, which makes car-heating systems, knocks off work each day at 3 p.m. in the course of a 35-hour work week. He worked just 12 days total in May, which had four national holidays. Now he's planning to visit a cousin in Berlin, then head on to see some friends in Hamburg. He's pondering a diving trip in Egypt for later in the year, but hasn't firmed up his plans. "I like to keep it open," he says. Europeans are well known for a more balanced lifestyle than workaholic Americans. But these days, Europe has never worked so little. While the Continent worked as much as the rest of the developed world 20 years ago, it has steadily cut back on work weeks while lengthening vacations, a trend that has gathered steam in recent years. Without realizing it, Europe has embarked on an unusual experiment in an era of globalization: trying to become more competitive while working less. So far the economic results are not promising. Two years ago at a summit in Lisbon, European Union government leaders set the goal of becoming the most competitive economy in the world by the end of this decade. But with unemployment rising and nearly no growth in consumption, Europe's fortunes appear tied to a U.S. turnaround more than ever. Europe is on track to grow by about 1% in the first half of the year -- well below the U.S.'s 3% rate -- with nearly all the growth coming from exports. U.S. growth per capita, a common measure of standard of living, grew at twice the rate of Europe's largest economies in the 1990s. Nevertheless, France this year extended its three-year-old law reducing the work week to 35 hours from 39. The far-reaching measure now includes companies with fewer than 20 employees. Parents in Sweden just got another 30 days of parental leave, at 80% of their salary. That brings the total to 480 working days per couple for each child -- almost a threefold increase since the 1970s. Vacations have nearly doubled over that same period in several European countries, including Italy, Spain and the Netherlands. About six weeks is now the annual norm across Europe. On top of all their days off, Germans typically are now out sick for 10 days each year, unheard of two decades ago. The divergence between the U.S. and European economies goes beyond the matter of working time. The U.S. enjoys a deeper pool of investment capital, mobile workers, a developed entrepreneurial culture and faster adaptation of new technologies, among other advantages. But, says Michael Burda, a professor of labor economics at the Humboldt University in Berlin, "you have to work to grow." Cutting Back Europe, though, continues to cut back. Today, the average German worker puts in about 1,400 hours a year, a 17% decrease from 1980, according to the Organization for Economic Cooperation and Development. Workers in Italy and France -- who with Germany make up 70% of the economy of the 12 countries that share the euro currency -- also are working far fewer hours than they did then. Americans, meanwhile, are working about the same average hours they did in 1980, about 1,800 a year. During Japan's decade-long economic slump, employees' historically high working hours also have dropped but are still roughly even with those of Americans. In Europe, "we have fewer job opportunities distributed across people who work less," says Andrea Ichino, a professor of economics at the European University Institute in Florence, Italy. Many Europeans view a healthy dose of leisure as part of what separates them from Americans. But it wasn't always so. When Europe rebuilt after World War II, economic growth surged across the Continent, averaging close to 5% in the 1950s and 1960s, twice that of the U.S. at the time. Unemployment was half the U.S. level. Germans and Italians averaged 2,100 working hours a year, compared with about 1,900 for Americans at the time, according to the OECD. Europe began to catch up to the U.S. and the performance of the globe's major economies appeared to be converging. But then came the oil shocks of the 1970s, when skyrocketing energy prices brought on inflation and recession. The different responses of the U.S. and Europe go a long way in explaining their economic performances of the succeeding decades. While U.S. companies slashed workers and restructured, Europe tried to cushion the blow by boosting government spending, expanding unemployment benefits and enacting stricter laws against firing. The measures helped to preserve calm in the face of the biggest economic shock since the war, but they made the Continent less adaptable to future changes. In the three decades since, the U.S. created 50 million new jobs, five times the number generated in Europe, according to figures compiled by Lehman Brothers. While unemployment in the U.S. steadily fell in the U.S. after the difficult 1970s, it remained stuck at about 10% or more in Europe. Enter the shorter working week. Unions argued that reduced hours would spur job growth by spreading the same amount of work among more people. Most economists dismissed the theory, but some argued it could force Europeans to become more efficient, squeezing more work into less time. Neither turned out to be true. Unemployment stayed high and productivity -- the measure of the amount of output achieved by one worker in an hour -- still lags behind the U.S. and fell further behind in the last few years, according to the OECD. While U.S. manufacturers stuck with the 40-hour week in place since the war, most European countries went to 35 hours during the next two decades. Unions and governments asserted that the measures created or saved jobs. The French government claims its 35-hour law has led to more than 200,000 jobs since 1999. The new hires, though, come partly from subsidies the French government paid companies to hire new workers while the new law was phased in. Caterpillar Inc., the U.S. maker of heavy machinery, added 70 new workers at its plant in Grenoble to cope with the change, bringing its total work force in France to 2,300. Like many others, the company chose an option in the law to let workers take more vacation days in lieu of reducing their weekly 39 hours to 35. But it quickly found that projects were delayed because too many people were out of the office on a given day. "If our only competition and customers were in France it would not be an issue," says Laurant Rannaz, head of human resources for Caterpillar in France. "But they come from around the world." For some smaller companies that can't afford to hire new workers to make up for the reduction in hours, the results have been disastrous. In the wine cellar of her 17th-century farmhouse in Aloxe-Corton, near Dijon, Veronique Perrin frets that she may have to sell the vineyard where her great-grandmother grew up. Her three workers no longer come in on Fridays as a result of the law change. What's more, the company that provides the labels for the 50,000 bottles of wine she makes each year can no longer keep up with her demand because it has lost worker hours. "This is not the life I had in mind," she says. For the bigger companies, globalization affords an escape hatch from the restrictions at home. Even though Europe boasts high-skilled, well-trained and educated workers, companies say the shorter work hours make the higher costs even harder to justify. French car maker PSA Peugeot Citroen, for example, more than doubled the size of its work force outside France to 68,800 in the last decade, while its domestic work force shrunk by 4,000. In Germany, Volkswagen AG expanded its foreign work force by two-thirds while keeping its domestic work force at 20-year-old levels. The company now makes its trademark Golf in Slovakia, Brazil and South Africa, as well as in Germany, and all of its new Beetles in Mexico. Companies won't hire at home, even if demand is strong and existing workers are stretched. Moog GmbH, the Boeblingen, Germany, subsidiary of the U.S. maker of hydroelectric valves used in airplane wings and other devices, at the moment needs 27 more high-skilled engineers. But Hubert Ammer, the head of human resources, has no plans to hire -- at least not in Germany. The company is in the midst of moving various divisions to India and the Philippines, where employees are cheaper and work longer. "Hiring is the last thing you do" in Germany, says Mr. Ammer. "Only when there is no other way to get the work done." He says this constrains the company's growth because it takes time to find skilled workers abroad, but he has no choice. An engineer who works only 35 hours isn't worth it for the company, he explains. He recently grew fed up with a worker who was taking 50 to 60 days of sick leave a year, in addition to all his vacation time. When the company moved to fire him, the employee got elected to the company's workers council, which represents employee interests to management. The position protects him from being fired. "If someone wants to do this, they can do it," he says. "And it's too expensive for us to do anything about it." The case is now in court. Stories such as these help explain why Europe hasn't become as attractive a home for foreign investment as the U.S. From 1991 to 1998, the amount of revenue of foreign manufacturers in the U.S. more than doubled to $883 billion, accounting for 42% of all revenue of foreign subsidiaries in the 30 industrialized countries that constitute the OECD's membership. The equivalent numbers shrank, both by volume and in percentage terms, in the three largest European countries in that time. 'Parking Lot' The lack of job growth is particularly acute in Italy, which has the lowest percentage of working-age people holding a job of any country in Europe. With few job prospects, many young Italians just keep studying: The average age of graduation is 28. Universities have become a "parking lot" for young Italians unable to crack into the job market, says Ettore Recchi, a sociology professor at the University of Florence. Working less has become culturally ingrained since the 1970s, he says. Priorities and values have shifted. Family, having a boyfriend or girlfriend and leisure have all grown in importance among Italians aged 15 to 24 during the last 20 years, according to a recent survey by Iard, an Italian research firm. The importance of holding a job has declined steadily, the survey shows. Many Europeans don't have their first work experience until their late 20s. Similar surveys show that holding a job remains the top priority for Americans, who typically start work in regular, if part-time, jobs as teenagers. "I want to work, but I also want to have fun," says Francesco Montanari, a 27-year-old economics student, sipping a cappuccino in a cafe on a steamy, crowded Bologna street. He wears a white sweater tied around his shoulders and black Gucci sunglasses pushed up in his hair. Mr. Montanari has dabbled at a few jobs, such as a disc jockey in a dance club, but he figures he'll continue to study until his father cuts his credit card. He still lives with his parents at home. "My father's generation came out of a war and they had to work, but we have a different situation now," he says. About 52% of Italians between the ages of 20 and 34 live at home with parents, an arrangement that provides not only warm meals and free laundry service but the option not to work. That's a steady rise since the late 1980s. While some Italians tout the trend as a sign of the strength of family values, Mr. Recchi, the sociology professor, calls the growing dependence on family a "cultural dope." The differing work habits on the two continents stem in part from a choice on how to use the gains from prosperity. Europeans opted for more free time; Americans for more money and consumption, surveys show. From the perspective of many Europeans, it's the hard-working Americans who have it wrong, at a heavy price to society. "Usually, when people get richer, they work less," says Juan Dolado, professor of economics at University Carlos III in Madrid. Spending so much time working, Mr. Dolado argues, means less time with family, less social cohesion and arguably more fertile ground for crime, a much bigger problem in America than in Europe. Plus, while more Americans have jobs, many of these pay less than what jobless Europeans get on welfare. The large role of the black market in many service sectors such as home repair in Europe -- an off-the-books market far bigger than in the U.S. -- provides a comfortable income for some, though it doesn't show up in federal tax coffers or official statistics. Governments and unions are awakening to the need for change. Italy is cutting study time nearly in half. The new French government is expected to allow more overtime. And federal campaign season in Germany has prompted debate on loosening Germany's rigid labor market. Most governments have promoted part-time and other flexible work schemes, a trend that has grown in recent years. The reason for the new attention is clear enough: Disaffected, jobless young people were pivotal in the recent removal of the left-center French government. Rising unemployment may do the same in Germany's federal elections in September. Concerned, the German government is considering scaling back jobless benefits to push the unemployed into the work force. Reforms are tough to implement and the trend is unlikely to be reversed anytime soon. Industry groups in Italy, for example, want to remove a law passed in the 1970s that makes it hard for large companies to fire. But recent government proposals to water down the restriction prompted the largest one-day strike in decades in April. The resistance stems in part from Europeans growing accustomed to their newfound leisure. The French hours-reduction law gave Thierry Gaymard, a manager of nine Toys "R" Us stores north of Paris, 9½ weeks of vacation, more than twice as much as he got before the law was introduced. Instead of cutting his work week, he's taking longer vacations. Mr. Gaymard has used the extra time to lower his golf handicap and attend more school activities of his two young daughters. And he's begun building a new house, about a third bigger than his family's current home. For his American wife, accustomed to two- to three-week U.S. vacations, it was a "pretty big shock," he says. Now: "She loves it." Tom Walker 604 254 0470 Tom Walker 604 254 0470
