MAY 7, 2009
U.S., Europe Are Ocean Apart on Human Toll of Joblessness
By MARCUS WALKER in Hohenlockenstedt, Germany, AND ROGER THUROW in Rockford, Ill.
WSJ
In Germany, losing his factory job didn't stop Alfred Butt from taking a Mediterranean vacation this winter. Thanks to generous jobless benefits, being out of work "hasn't changed my life that much," Mr. Butt says. In the U.S., Dylan DeRoberts lost similar work -- but there's no seaside getaway for him. Instead, he's giving up life's little pleasures, like riding his snowmobile, because he lost his insurance, too. "I've learned to live at a new level," Mr. DeRoberts says.
Unemployment is taking a very different human toll on opposite sides of the Atlantic, which helps explain why Europe and the U.S. can't agree on how to attack the global recession. The U.S. is spending hundreds of billions of dollars -- including increased assistance to the unemployed -- to prop up the economy, and wants Europe to follow suit. But most of Western Europe already has a strong, if costly, social safety net, so governments feel less pressure to spend their way out of trouble.
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The differing U.S. and European approaches toward worker protections can influence recovery prospects. Unemployment is similarly high, above 8% and rising, both in the U.S. and among the 16 European countries that use the euro currency. But Europe's high payroll taxes, along with restrictions on when and how companies can lay off workers, make employers slower to rehire when a recession ends. That's one reason why economists expect the U.S. to stabilize faster than Europe. Last month the International Monetary Fund predicted that the euro-zone economy will keep shrinking next year, whereas the U.S. should bottom out by then. For Mr. Butt, losing his job as a raw-materials buyer for a German auto-parts maker was a serious blow. But state benefits will replace the bulk of his salary until May 2010. And he still has full medical insurance under Germany's universal system. Mr. DeRoberts, who lost his job at a Chrysler assembly plant in Belvidere, Ill., near Rockford, last year, saw his medical benefits expire several months later. He says he can't afford to pay the premiums on his own.
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Germany has built up a system of state-backed insurance for workers against illness, disability, old-age poverty and unemployment since the late 1800s. But benefits don't stay generous forever. Under a controversial labor overhaul in force since 2005, German unemployment benefits fall to a subsistence level after one year. The government decided the long-term jobless didn't have enough incentive to get off the dole, so it upped the pressure. Jobless benefits vary around Europe, just as they can vary state-by-state in the U.S. But in most Western European countries, the state replaces 60% to 80% of the average worker's lost salary, compared with just over half on average in the U.S., according to the Organization for Economic Cooperation and Development. European benefits also tend to last longer. In Belgium, jobless benefits have no time limit at all. In Denmark, the state replaces up to 90% of lost wages and invests over 4% of gross domestic product every year in supporting and retraining the jobless. By contrast, before the current crisis struck, the U.S. spent about 0.4% of GDP on retraining and benefits, according to the OECD.
Less-generous European countries include Greece, where initial benefits replace less than half of lost wages, on average. Heavily indebted households in countries such as the U.K. and Ireland, where property and lending bubbles have burst, are also particularly vulnerable in the recession. Economic pain in less-developed Eastern Europe is a separate and much deeper problem. The European way takes a toll in taxes. In Germany, over half the total cost of employing somebody consists of income tax and mandatory contributions to programs including unemployment insurance and pensions. In the U.S., that figure is 30% -- meaning employees take home more of the money it costs to employ them... The U.S. recently expanded unemployment and food-stamp benefits. New money for retraining the jobless, part of President Barack Obama's stimulus program, echoes government efforts in parts of Europe to give laid-off workers new skills.
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http://online.wsj.com/article/SB124155150793788477.html (subscription)
Printed in The Wall Street Journal, page A1
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