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Expanding the labor pool might help ease the shortage for strapped firms in the medium term, but it doesn't necessarily reduce the number of Europe's millions of long-term unemployed. In many countries, there is scant incentive to seek work. In Belgium, for example, a head of family who loses a longtime job can get up to $804 a month in unemployment, for an unlimited time. A typical low-wage job in Belgium pays only $898 after taxes. German employers complain about similar paltry incentives to seek work.
The nominally left-wing governments of Britain, the Netherlands and Denmark have led the way in decreasing unemployment by increasing the incentive to work, though the reformed unemployment system still looks amazingly cushy by U.S. standards. The Danish government has cut the time jobless can receive generous unemployment benefits from nine years to four. It has also launched an aggressive program of subsidizing jobs for young people and pressuring the unemployed into taking them. "They succeeded in basically doing away with unemployment among those under 25," says Richard B. Larsen, director of the Confederation of Danish Industries.
In Britain, unemployed youth are being nudged into work by the government's "New Deal" program. Those under 24 get four months of intensive job counseling, followed by entry into a subsidized private job, a public-service job or full-time training or education. Those who reject the options can face cutoffs in benefits for up to six months, and then the cycle begins again. The government also gives low-wage working families a substantial tax credit to increase the distance between employed income and welfare, and next year will be offering those who leave the dole a $160 one-time payment to offset the costs of entering employment.
Spain's steep growth rate over the past few years has helped the conservative government of Prime Minister Jose Maria Aznar create more jobs since 1996--1.1 million--than the rest of the E.U. combined. Although Aznar has enjoyed surprisingly good relations with Spain's labor unions, the two sides disagree on how to continue chipping away at Spain's 15.2% unemployment rate, the E.U.'s highest. Employers are pushing to expand the ranks of workers on short-term contract and reduce the social security costs they bear in layoffs. The unions argue that limited work contracts--covering two-thirds of Spain's teachers, health and construction workers--aren't a good fix for 1.65 million unemployed.
The eminent historian Jacques Barzun has pointed to a paradoxical precedent for Europe in the kind of dual labor market being created by the cyber revolution: the Dark Ages. Back then, he observes, clerics in Europe's monasteries were the keepers of arcane knowledge, namely literacy, who benefited from their monopoly of the skill. The cyberliterate of today are increasingly in a position to lord it over those who fail to master the skills of the new economy. So for European policymakers, the alternatives are perhaps more clear, and more stark, than they seem: Middle Ages or Renaissance?
--With reporting by Lauren Comiteau/the Hague, Bruce Crumley/Paris, Helen Gibson and Jennie James/London, Ulla Plon/Copenhagen, Jane Walker/Madrid, Steve Zwick/ Cologne, with other bureaus