Europe's labour market is characterised by long tenures and low job-switching. One in four Europeans has been with their employer for longer than two decades, compared with just one in ten Americans. Research by Niklas Engbom of New York University, using detailed Swedish data, finds that older workers are less likely to switch employers, suggesting the problem will worsen as the continent ages.
European unemployment peaked at almost 12% in 2013 and has since fallen to below 6%, owing to policies that made hiring and firing easier, reduced the lure of unemployment benefits, stronger demand and an ageing workforce. The challenge has shifted from tackling joblessness to boosting economic growth and innovation.
Labour-market practices that once suited an economy safe from disruption—high firing costs, tenure-related benefits and collective bargaining—are ill-suited to an age of tariffs and fiercer Chinese competition. Workers who switch jobs learn and teach new skills, helping ideas diffuse across the economy, and enable more productive firms to expand faster. Simon Jäger of Princeton University and co-authors find, using a German survey, that workers who could earn a 10% higher wage by moving jobs expect a raise of only 1% on average—suggesting poor information compounds the structural barriers to mobility.
Olivier Coste and Yann Coatanlem, two French entrepreneurs, have tracked the often opaque costs of corporate restructurings. An American firm shedding workers incurs costs equivalent to paying those sacked for seven months; in Germany the figure is 31 months of wages per employee let go; in France 38 months. Beyond severance pay and sops to keep unions happy, the biggest expense is firms keeping unproductive workers on their books. New investments are delayed for years as dismissed employees are gradually replaced. American firms can quickly pivot to new opportunities; European ones are stuck haggling with unions, due often to laws devised nearly a century ago.
High restructuring costs skew the kinds of investments that executives make. Large companies financing ten risky projects typically see eight fail, resulting in redundancies; the remaining two generate profits worth many times the invested sums. When the cost of failure is low, as in America, that is a handsome bet. When sacking workers is expensive, as in Europe, it is simply not worth it. The effect is visible on the corporate landscape: many of Europe's blue-chip firms sell products that are essentially improved versions of what they sold in the 20th century—turbines, shampoos, vaccines, jetliners—while America's star firms peddle AI chatbots, cloud computers and reusable rockets. Nvidia, an American chipmaker, is worth more than the EU's 20 biggest listed firms combined.
Proposed reforms include making pensions and severance pay portable and unrelated to tenure, untying collective-bargaining agreements that set wages by length of service, making unemployment benefits available to those who quit (not just those who are fired) and limiting labour-hoarding subsidies such as furlough schemes to crises. Housing policies that increase the cost of moves also trap workers in less productive regions.
court, n.: A place where they dispense with justice.