The Holiday's Over

Such red tape, say employers' organizations and some economists, helps explain why companies in Germany, France and other Continental European nations are so reluctant to invest and hire new workers at home. Not so fast, say labor unions and other economists, who believe the fault lies elsewhere — with overly restrictive government fiscal policies and tight monetary conditions imposed by the European Central Bank that are choking growth. Jean-Paul Fitoussi, a prominent French economist, says "logic dictates that you would cut taxes in a recession and cut public spending in a period of growth. But we're doing the opposite. That limits growth and makes the slowdown last longer."

Not all European countries are affected equally. Britain likes to contrast its less regulated economy — including more flexible hiring and firing rules — with those on the Continent to explain why U.K. unemployment is at 5% of the labor force compared with almost 9% in Germany and 9% in France. But not even the U.K. has been spared the longer-term decline common to the rest of Europe. Although its economy sped up during the 1980s, per capita growth fell back in the 1990s to the same rate of the 1970s, and is now barely higher than the E.U. long-term average, according to O.E.C.D. statistics.

Union bosses are caught in the middle of the argument. Michael Sommer, the head of the German Trade Union Federation, which has been battling Chancellor Gerhard Schröder's efforts to overhaul labor-protection rules and reduce social-security costs, declared last week that the original program had been defanged to his satisfaction. But he added: "It's not clear that the government has understood the seriousness of the situation. It needs to start an active economic policy, or else the nation will be driven further into crisis." Even militant French unions see the current system needs an overhaul; there simply aren't enough younger people to continue paying for the retirement of their parents' generation. And yet they march. It's not just union members who feel this conflict. A recent poll in Le Monde shows that 80% of French people see financing their pensions as a serious problem that needs to be tackled urgently. But 49% support the unions' stance.

Marion Uteza, a Paris elementary-school teacher, epitomizes this straddle. Marching in a mass demonstration through Paris late last month with her 5-year-old daughter and a handwritten sign proclaiming no to an american-style society, she acknowledged the inevitability of changing the pension system. It was the details of the government's plans she didn't like. "Surely it must be possible to reform pensions without destroying the system," Uteza said.

Arcelor, Europe's largest steel company, may provide a glimpse into Europe's workplace future. The Luxembourg-based firm, which has j26.6 billion in revenues and employs 104,000 workers, has managed to extend the retirement age without destroying the system. For 15 years, starting in the mid-1970s, everyone over 50 at its French operations — then a stand-alone company called Usinor — took early retirement. It was part of a government-subsidized restructuring program for the steel industry, and a boon to 100,000 workers, who retired early on 92% of their salary. But when the government stopped the subsidies in 1990 after protests from rival steel firms and other French industries, Usinor had to scramble to figure out what to do with its older workers. The answer, says Daniel Atlan, human-resources manager, was a program to push the retirement age out to 60, and upgrade skills. The jobs of everyone over 50 were guaranteed, and thousands were retrained to use computerized equipment. People under 50 were told they would only be laid off if other work could be found for them: the firm created an employment agency to help. "Most of the people we hired in the '70s we hired for their muscles, not their brains," Atlan says. "But we told them: 'If you improve your skills, we'll improve wages.' It was a big bet: we'd pay more, but we'd improve our performance." The bet paid off, Usinor was privatized and merged with Luxembourg and Spanish steel firms to become Arcelor. Overall productivity doubled in the 1990s and Atlan estimates that about half of the increase was due to the improved skills of the steelworkers. But weaning the workforce off early retirement hasn't been easy, and many older steelworkers ended up working part time. "People still want to leave early," Atlan says. "We haven't changed the mindset."

Back in Ris-Orangis, too, people are having a hard time adjusting. Like many towns outside Paris, it grew at a solid clip in the 1990s. But starting in 2001, the economy sagged. Bigger firms in the area, including telecommunications giant Alcatel, began layoffs. The hardest blow came when Danone shut its LU cookie factory on the edge of town. The 290 ex-employees still looking for jobs have an average age of 48. "It's not going well," says Farid Djitli, a union representative. Only one person has found work at the same pay; 40 others took a 30% pay cut. They are being cushioned by Danone: as part of the severance package, it's making up for the shortfall in pay for three years. Even so, says Jean-René Buisson, the firm's general secretary, "it's difficult to convince people to take lower-paying jobs." Who can blame them? No one wants to believe the good times are gone. But doing so may be the key to getting them back.