The European Union is determined to lead the way in the grid technology revolution, realizing that the potential productivity gains of being first in the field could be enormous and unprecedented for European business. The EU already has in place a five- to ten-year strategic plan and is projected to spend upwards of $428 million between 2002 and 2006 to upgrade the grid infrastructure.35 Europe’s ability to establish unified standards of operation, coordinate activity among competitors, and create public-private partnerships generally gives it a leg up on American companies, where a “go it alone” strategy often results in competing standards, haphazard development of new technologies, and market redundancies. Certainly this has been the case with the wireless technology revolution and now with the new grid technology.
European business is banking on the prospect that increased outlays for pure research and collaborative public-private partnerships to advance new technologies, when combined with the benefits of increasingly seamless internal market operations, will be the winning combination to boost productivity gains to new levels and keep the EU competitive with the U.S.
Live to Work or Work to Live?
Even though Europe’s productivity is between 92 and 97 percent of the U.S. level (depending on how the figures are adjusted), per capita income in the EU is just 72 percent of American per capita income. How do we explain the divergence? Some of the difference has to do with the lower employment participation rates in Europe—lower employment in relation to the total population—differences in retirement ages, and unemployment rates. But 75 percent of the difference is attributable to the fewer hours worked in the EU.36
It turns out that in France, and virtually every other country in the European Union, workers have opted for more leisure rather than longer work hours and bigger paychecks. The French government instituted a thirty-five-hour workweek in 1999.
The French experiment is particularly interesting because it defies the American logic that hard work and long hours on the job are indispensable to achieving significant gains in productivity and a better quality of life for working people. As already mentioned, French productivity in 2002 was higher than in the U.S., and French workers were enjoying far more leisure time.
The French went to the thirty-five-hour workweek, in part, to create more jobs. If people worked fewer hours, went the reasoning, additional people could be employed, thus reducing the nation’s unemployment roles. To make sure there would be no loss in pay, the law mandates the thirty-five-hour workweek at the old thirty-nine-hour pay scale. The government, in turn, is obliged to subsidize the companies by lowering employers’ social security contributions so there will be no net loss of revenues to the employers in making the shift to a thirty-five-hour workweek schedule.37 In addition, the government provides an incentive to companies to create new jobs by agreeing to subsidize the social payments (retirement, health care, workers’ compensation, and unemployment insurance) of any newly hired low-wage workers.38 The annual cost of subsidizing French companies is about $10.6 billion.39 Much of the funds have come from so-called sin taxes on tobacco and alcohol. The government expects to make up the remainder of the payout by the addition of new workers onto the employment rolls. More people working means fewer people on government assistance. The new workers bring home paychecks, spend money in the marketplace, and pay taxes, all of which accrues to the overall well-being of the French economy. More than 285,000 jobs have been directly created by the thirty-five-hour workweek plan since its inception.40
Skeptical at first, most French employers have been won over to the scheme. They’re finding that fresh and motivated workers can produce just as much output in seven hours a day as less motivated and more tired workers can in eight hours. And, there has been an ancillary benefit: the thirty-five-hour-workweek law allows employers greater flexibility in assigning work schedules. They can now establish weekend, evening, and holiday shifts, and require employees to spread out their vacation time to accommodate production schedules.41
The thirty-five-hour law also built in other accommodations to both management and labor. For example, the thirty-five-hour week may be measured not only by hours worked per week but also by hours per month and days per year. Senior management in companies may be exempted from the working hour restrictions. Overtime, under the new law, must exceed regular pay by at least 10 percent. Moreover, an employee may not work more than 180 extra hours per year in the absence of a collective bargaining agreement. Overtime that exceeds 180 hours requires a 20 percent pay increase.42 In a survey of corporate directors conducted in 2001, 60 percent of the respondents polled said that the new law helped improve productivity by introducing more flexible work arrangements and by creating a new dialogue with workers, which improved morale.43
More leisure time has also boosted consumer spending at French cafés, movie houses, sporting events, and other entertainments. Surveys show that, for the most part, the French public is enthusiastic about the shorter workweek. Workers often start their weekends on Thursday and don’t go back to work until Tuesday. Working moms have the option of staying home on Wednesday, when most French schools are closed.44
While the worldwide jobless recovery of the past two years has dampened France’s employment prospects, as it has those of the United States and every other country in the world, had France not introduced the shorter workweek, there is no doubt that its unemployment rate would be even higher than it is now.
In a number of other European countries, the average workweek is already thirty-nine hours or less, and most are edging toward the thirty-five-hour French workweek. Meanwhile, the average vacation time across Europe is six weeks, and in most countries, vacations are mandated by federal law.45 In the U.S., employers are not obligated by law to provide any vacation time. Two weeks’ vacation, however, has become a standard in most industries.
French workers are on the job about 1,562 hours per year, according to the most recent OECD figures (2000). In contrast, U.S. workers put in 1,877 hours per year, the most of any of the major industrialized countries. The average American worker is now working ten weeks more a year than the average German worker, and four and a half more weeks a year than the average British worker.46 Even in Japan, which is known for its long, grueling workdays, workers clock in for 1,840 hours of work per year, thirty-seven hours fewer than in the United States.47
Europe is far ahead not only in advancing shorter workweeks but also in creating innovative approaches to human resource management to allow workers greater flexibility in juggling work and lifestyles. Belgium, for example, has introduced novel legislation called “time credits,” which went into effect in January 2002. The law is designed to create a more flexible balance between one’s work life and home life, and updates an older law called “career breaks.”48
Under the new “time credits” law, workers can take a maximum of one year off over their entire career or interrupt their work, or reduce it to a half-time job without severing their employment contract and without loss of social security rights. To receive a general career break, the employee has to give a three-month advance notice to the employer but does not have to give any reason for the request. The time credit can be extended up to five years by an agreement with the company. Employees who have worked less than five years receive a monthly government allowance of €379. The allowances rise to €505 for workers who have been employed longer.49 Workers can also request “thematic leaves” to take care of an ailing family member, to provide medical assistance to a relative, or to take care of a child. Each of these specific career breaks comes with different allowances and allocated times. Each worker can also choose to reduce his or her working hours by 20 percent, which generally works out to be a four-day workweek. Workers over the age of fifty can reduce their work hours by one-fifth to one-half over an unlimited period of time.50
American employers would be incredulous at the thought of providing career breaks and time credits and wonder how Belgium’s companies coul
d maintain their competitive edge with these kinds of flexible labor schedules. Still, it’s interesting to note once again that, like France, the Belgian workforce enjoyed higher productivity in terms of output per hour than the American workforce in 2002.51
Europeans like to say that “Americans live to work” while “Europeans work to live.” What’s the point of making more money, they argue, when you have no leisure time to enjoy it? According to one study, 37 percent of Americans now work more than fifty hours a week, and 80 percent of male workers work more than forty hours a week. And the hours worked by many Americans keep going up while in Europe hours worked keep going down. No wonder 70 percent of American parents complain they lack sufficient time with their children, while 38 percent of Americans say “they always feel rushed,” and 61 percent say they rarely have excess time.52 With so little time available after work, Americans use many of their spare moments just to run errands, pay bills, and fix up the house.
The increase in work hours takes a heavy toll on American health, according to health professionals. Stress-related diseases—heart attacks, strokes, and cancer—are on the rise in America. One recent study by the journal Psychosomatic Medicine found that the more often American workers skip their vacations, the higher their health risks are. Men who took an annual vacation were 32 percent less likely to die of coronary artery disease than those who did not take vacations.53
The difference in how Europeans and Americans conceive a good economy is reflected in the hours worked on both sides of the Atlantic. If one measures the standard of living in terms of paychecks, Americans are 29 percent wealthier than their European counterparts.54 But if one measures the good life by the amount of leisure time available, the average European enjoys four to ten weeks more of play each year.55 The question, then, is, Does that 29 percent of additional wealth buy more joy and happiness—enough at least to justify giving up upwards of two to three months of additional leisure each year? As my wife is fond of reminding me—because I, too, am an American workaholic—“No one has ever regretted on their deathbed that they didn’t spend more time at the office.”
Ironically, when Americans opt for more work than play, the increase in wages shows up in the GDP figure. But, when Europeans choose more leisure over more work, the GDP is adjusted down to reflect the lost wages and consumption. The way the GDP is set up does not allow it to account for quality-of-life considerations such as increasing leisure time, even though such choices are fundamental economic decisions, just like choosing to work longer hours. (We will delve into the issue of how GDP biases the notion of what constitutes the good economy in greater detail in chapter 3.)
What About Jobs?
There is, however, one place where traditional economic figures still count—that’s jobs. And while the American economy can be justifiably taken to task on a number of fronts, admit American economists, the question of jobs is basic to a healthy economy, regardless of the questions one might entertain about fairness or quality-of-life concerns. The American economy can’t be that far off the mark, since it has produced far more jobs and put far more people to work over the course of the past decade than almost every other developed country. We found jobs for millions of people after the recession in the late 1980s and early 1990s. We reduced unemployment from a 7.5 percent high in 1992 to 4 percent in 2000, an extraordinary feat by any reckoning. Although unemployment has climbed back up to 5.7 percent (December 2003) in the aftermath of the stock-market crash of 2000, it is undeniable, say the economists, that the American economy has been an engine of job creation and a model for Europe to emulate.56
In countless seminars and meetings over the past eight years with business leaders, economists, and politicians on both sides of the Atlantic, my American colleagues have been relentless in their praise of what they call “the American miracle,” and have taken advantage of any and every opportunity to lecture their European friends about the superiority of American business know-how that led to the creation of so many new jobs in the 1990s. A closer look suggests that many of the new jobs created had little to do with superior entrepreneurial talent or better managerial skills or the quicker adoption of new technologies, but with other factors that artificially boosted the employment figures for a brief moment only to disappear just as quickly once the stock-market bubble burst.
While U.S. official unemployment was 4 percent at the peak of the late 1990s economic surge, a recent national study found that real unemployment during that period was significantly higher, approaching the unemployment levels in the European Union. That is because more than two million discouraged workers simply gave up and dropped out of the workforce and therefore were no longer counted in the official statistics, and the prison population soared from 500,000 in 1980 to two million people today. Nearly 2 percent of the potential male adult workforce in the United States is now incarcerated.57 Moreover, many of the workers who did find employment in the boom period between 1995 and 2000 were temporary and part-time, without benefits, and for the most part underemployed. Many of them have now sunk back into the ranks of the unemployed. While the U.S. Labor Department put the official unemployment figure at 6.2 percent in the summer of 2003, real unemployment, when discouraged workers who have given up are counted, is 9 percent of the workforce.58
It turns out that the so-called American economic miracle of the late 1990s, which created a temporary bubble of new employment, was illusory. It wasn’t so much America’s business acumen that fed the commercial expansion but rather the runaway extension of consumer credit, which allowed Americans to go on a wild buying binge. The burst in consumer spending put people back to work for a few years to make all the goods and provide all the services being purchased on credit. The result was that America’s family savings rate, which was about 8 percent in the early 1990s, sank to around 2 percent by the year 2001.59 Many Americans were actually spending more than they earned. With their credit maxed out, millions of Americans took advantage of record low interest rates and re-financed the mortgages on their homes, giving them a quick cash infusion in order to continue buying. Now, in the aftermath of the stock-market bubble burst, Americans have slowed spending, and the temporary decline in unemployment has given way to a steady climb back to the unemployment levels experienced nearly a decade ago.
The U.S. economy is experiencing its worst hiring slump in more than twenty years. Even with a 2.7 percent growth in the economy in 2002, and a steep rise of 4.7 percent in labor productivity—the biggest increase since 1950—more than 1.5 million more workers left the job market altogether. 60 They simply gave up looking for work and are, therefore, no longer counted as unemployed. The old logic that technology gains and advances in productivity destroy old jobs but create as many new ones is no longer true. According to a report prepared by USA Today on productivity in America’s largest companies, it now takes only nine workers to produce what ten workers did in March 2001. The bottom line, says Richard D. Rippe, chief economist of Prudential Securities, is that “we can produce more output without adding a lot of workers.”61
The European Union is in the throes of a great debate about the future of work. Saddled with high unemployment, high taxes, burdensome welfare systems, and convoluted regulatory regimes, which some say only perpetuate economic stagnation, critics in government, industry, and civil society are locked in a fierce ideological struggle about whether the rules governing employment, commerce, and trade need to be reformed and, if so, how. Politicians and business and labor leaders squabble over the issues of creating a flexible labor policy, lowering taxes, rewriting the rules governing welfare and pension allotments, and bringing their economic policies in line with the United States.
If the key to creating new jobs, however, was only a matter of making the above reforms, then the United States of America should be experiencing high levels of employment. We have made virtually all of the reforms that the European Union is now attempting to implement. Yet the U.S. workforce is experiencing har
d times, and the American economy has still not fully recovered from the last recession. Inventories are not being emptied, most industries are running below capacity, consumer savings are low, personal bankruptcies are at a record high, exports are down, and the stock market has still not regained the ground lost when the bubble burst in 2000-01. Other economies around the world are experiencing similar woes.
All of this bad news begs the question, Does the European Union really believe that its economic future is likely to look up substantially if it merely follows the U.S. lead on labor, welfare, trade, and other reforms? No one would argue that such reforms are unnecessary, although the question of how best to streamline the entrepreneurial spirit without sacrificing the social well-being of the EU workforce is a critical concern.
Myths die hard. Despite the fact that America’s job miracle turned out to be short-lived and less robust than the hype would warrant, many European policy leaders and public officials continue to look to the American model for their inspiration and guidance. Their enthusiasm is misdirected. Rather than asking what Americans have done right and what Europeans have done wrong—a favorite pastime of European leaders—Europeans should instead congratulate themselves on creating the most humane approach to capitalism ever attempted, and then ask what kinds of new ideas might be implemented to improve on their existing model. Maintaining the appropriate social benefits and pursuing a high quality of life for its citizens should be viewed by the EU as integral to the task of creating the first truly sustainable superpower economy in the world.
The European Dream Page 7
