Germany sounds the alarm on jobs

The five-point plan to cut the jobless queues produced by the Group of Seven in Detroit yesterday was the usuals stuff of which G7 communiques are made: five points upon which everyone can agree.

More significant were the comments by the German labour minister, Norbert Blum, who said that Germany would lose three million unskilled jobs in the next eight years, adding that this would happen even if the economy were booming - 'which, I think, is an alarm signal'.

The G7 statement is straightforward enough. Points one and two - the need for free trade and open markets, and for low inflation - are in all such statements by the G7. It would have been a good story had they been omitted; having them in means nothing.

Point three, the need for flexible labour markets, might have seemed more contentious 10 years ago, when it could have been seen as a coded attack on trade unions. But now there would be few in the G7 countries who would object to more flexible labour markets as such.

Point four, the need for investment and training to improve skill levels, is also now widely accepted, the only area for debate being the question of which skills should be taught. This is a genuine debate: there is no point in training people for the jobs which are disappearing, but it is hard to train people for the new jobs when no one really knows what these will be.

Finally, point five, the need to encourage enterprise, is also becoming standard G7 rhetoric. That point would not have been in G7 statements in the 1970s, but the searing effect of a decade of job cut-backs by the large employers has made the policy-makers all too aware that the only sectors that will boost employment will be small- and medium-sized businesses - and the self-employed.

But we all knew this. What one should look for at these international meetings is things we do not know about. That is why the comments by Mr Blum are so important, for they are evidence that the policy-makers in a rather rigid society like Germany are trying to take on board the scale of the adjustment that had to be made.

He made three main points: there is an enormous change ahead in the labour market and rapid growth of itself will not solve these; one way of attacking Germany's cost disadvantage is to change outdated work practices; and in creating employment, Germany should avoid the US practice of generating large numbers of very low-wage jobs.

The point that growth of itself will not mop up the pool of jobless has a significance well beyond Germany. Of course, decent growth makes it vastly easier to pull down unemployment, and recession destroys jobs. But it is perfectly possible to envisage a recovery in Germany - and for that matter the rest of Continental Europe - which does not cut the job queues at all. The gain in jobs from general economic growth may be more than offset by the loss from long-term structural change. That happened in Britain in the mid- 1980s: when the economy was some three years into the recovery, it was still seeing rises in unemployment.

The second point, that Germany has to attack outdated work practices, follows on from this. Attacking rigid work practices may enable German employers to offset the cost effect of very high wages. But the more successfully these practices are attacked, the greater the displacement of jobs. This may take the form of some full- time workers shifting to part-time, but there is likely to be a smaller workforce at the end. In the long term, it is the only way of coping with German wages, but in the short term it will cost jobs.

Finally, the criticism of the US practice of creating low-wage jobsis perfectly understandable, for there is an enormous cultural difference between the US and Germany with regard to the people who take on these jobs. The US has the tradition of welcoming immigrants who do low-paid jobs, giving them a foot on the bottom rung of the US ladder. Germany has attracted many such immigrants but does not accept them as citizens, thereby making the assumption that these people will some day go 'home'.

For purely cultural reasons, it is difficult for Germany to accept the US solution to unemployment: organising service industries in such a way as to provide a high quality of service with low-skill labour. It has to find a German solution to the problem.

It is too early to catch much feeling as to what the solution will be. The medium and small business sectors are cited as areas that will create the jobs, given that the social costs of employing labour are as high for small businesses as they are for large ones.

It is an act of faith to suppose that small business will succeed where large has failed. But it is unfair to expect answers at this stage. At least Germany is worrying about its system, a marked change from the self-confidence of three years ago.