A European Disease

CHICAGO: Many intellectuals in the United States and Eastern Europe believe that West European social welfare policies should be a blueprint for action in their own countries. But those policies are financed by high taxes and costly mandates on business that are mainly responsible for the enormous increase in European unemployment during the past decade and a half. This "European disease" cannot be cured until members of the European Union recognize it as potentially fatal.

In the late 1970s, unemployment was under 5 percent in France, Germany, and most other Western European nations. It is now closer to 12 percent in France and Germany, and perhaps 20 percent in Spain. The average rate for those under age 25 exceeds 25 percent in most members of the European Union. By contrast, unemployment in the United States has not increased during the past fifteen years, presently is only 5.5 percent, and is only about 12 percent for young workers.

The United States’ experience shows that the growth in European unemployment is not due simply to greater competition from the less developed world or to other forces that affected all advanced countries equally. The rapid growth of labor costs throughout Europe appears to have been a principle cause of its explosion in unemployment.

More than one-third of Germany’s and France’s average labor costs results from social security, health, unemployment compensation, disability, and other taxes; other European nations have similar shares. Regulations that restrict layoffs and mandate numerous vacation days and other paid leaves raise Europe’s cost of labor far above the excessive level due to their heavy taxes. Generous leaves for sickness and other reasons had increased Sweden’s and Germany’s absenteeism rates to almost 10 percent, compared with 2 percent to 3 percent in Japan and the United States.