The Labor Divide / Vaknin, Sam, 1961-

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Title: The Labor Divide

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The Labour Divide


1st EDITION




Sam Vaknin, Ph.D.




Editing and Design:
Lidija Rangelovska




Lidija Rangelovska
A Narcissus Publications Imprint, Skopje 2002

First published by United Press International – UPI
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Table of Contents


I. Battling Unemployment

II. The Labour Divide - I. Employment and Unemployment

III. The Labour Divide - II. Migration and Brain Drain

IV. The Labour Divide - III. Entrepreneurship and 
Workaholism

V. The Labour Divide - IV. The Unions after Communism

VI. The Labour Divide - V. Employee Benefits and Ownership

VII. The Labour Divide - VI. The Future of Work

VIII. Immigrants and the Fallacy of Labour Scarcity


Battling Unemployment
A First Draft Report Presented to the
Minister of Labour and Social Policy
By: Dr. Sam Vaknin
Economic Advisor to the 
Government of the Republic of Macedonia

Skopje, Republic of Macedonia
September, 1999
Contents
I.	Recommendations
II.	The Facts
III.	Bibliography
IV.	Appendix – The Keynesian view of Unemployment, 
Stabilization Theory and Full Employment Budgeting
V.	Appendix – Unemployment throughout the World 
(Excerpts from an academic article by R.di Tella and 
R. MacCullouch, 4/1999)



The author wishes to thank Mr. Rafael Di Tella from Harvard 
University (Harvard Business School) for his assistance in 
sharing with the author the article he has co-authored with 
Mr. R. MacCullouch of Bonn University.

The author wishes to thank Ms. Lidija Rangelovska for 
sharing her Country Assessment Survey results for Macedonia 
with the author. Her survey was prepared in collaboration 
with the Harvard Institute of International Development 
(HIID).






I.	Recommendations

Get the Real Picture

No one in Macedonia knows the real picture. How many are 
employed and not reported or registered? How many are 
registered as unemployed but really have a job? How many 
are part time workers – as opposed to full time workers? 
How many are officially employed (de jure) – but de facto 
unemployed or severely underemployed? How many are on 
“indefinite” vacations, on leave without pay, etc.?

The Statistics Bureau must be instructed to make the 
gathering and analysis of data regarding the unemployed 
(through household surveys and census, if necessary) – a 
TOP PRIORITY.

A limited amnesty should be declared by the state on 
violations of worker registration by employers. All 
employers should be given 30 days to register all their 
unregistered and unreported workers – without any penalty, 
retroactive or prospective (amnesty). Afterwards, labour 
inspectors should embark on sampling raids. Employers 
caught violating the labour laws should be heavily 
penalized. In severe cases, closures should be enforced 
against the workplace.

All the unemployed must register with the Employment Bureau 
once a month, whether they are receiving benefits, or not. 
Non-compliance will automatically trigger the loss of the 
status of “unemployed”. If a person did not register 
without good cause, he would have the right to re-register, 
but his “unemployment tenure” will re-commence from month 1 
with the new registration.

I recommend instituting a households’ survey in addition to 
a claimant count. Labour force surveys should be conducted 
at regular intervals – regarding the structure of the 
workforce, its geographical distribution, the pay 
structure, employment time probabilities.

The statistics Bureau should propose and the government 
should adopt a Standard National Job Classification.

The Unemployment Benefits

Unemployment benefits – if excessive and wrongly applied – 
are self -perpetuating because they provide a strong 
disincentive to work.

Unemployment benefits should be means tested. There is no 
reason to pay unemployment benefits to the children of a 
multi-millionaire. Unemployed with assets (especially 
liquid assets) should not receive benefits, even if they 
are otherwise eligible. The benefits should scale down in 
accordance with wealth and income.

Unemployment benefits should always be limited in time, 
should decrease gradually and should be withheld from 
certain segments of the population, such as school 
dropouts, those who never held a job, (in some countries) 
women after childrearing. 

Eligibility to unemployment benefits should be confined to 
those released from work immediately prior to the receipt 
of the benefits, who are available to work by registering 
in an employment bureau, who are actively seeking 
employment and who pass a means test. Benefits should be 
withheld from people who resigned voluntarily or discharged 
due to misconduct or criminal behaviour. In the USA, 
unemployment compensation is not available to farm workers, 
domestic servants, the briefly employed, government workers 
and the self- employed.

Unemployment benefits should not exceed short-term sickness 
benefits (as is the case in Canada, Denmark and the 
Netherlands). Optimally, they should be lower (as is the 
case in Greece, Germany and Hungary). Alternatively, even 
if sickness benefits are earnings-related, unemployment 
benefits can be flat (as is the case in Bulgaria and 
Italy). In Australia and New Zealand, both sickness 
benefits and unemployment benefits are means tested. It is 
recommended to reduce the replacement rate of unemployment 
benefits to 40% of net average monthly wages in the first 6 
months of benefits and to 30% of net average monthly wages 
thereafter in the next 6 months.




Unemployment benefits should be limited in time. In 
Bulgaria, they are limited to 13 weeks, in Israel, Hungary, 
Italy and the Netherlands to 6 months and in France, 
Germany, Luxemburg and the United Kingdom – 12 months. Only 
in Belgium are unemployment benefits not limited in their 
duration. In most of these, countries, though, social 
welfare payments replace unemployment benefits following 
the prescribed period of time – but they are usually lower 
than the unemployment benefits and serve as a disincentive 
to remain unemployed rather than employed. It is 
recommended to limit the duration of unemployment benefits 
to 12 months.

No health insurance should be paid for those unemployed for 
more than 6 months.

No unemployment benefits should be paid to a person who 
refuses work offered to him or her on any grounds, except 
on medical grounds.

I recommend a few pilot projects with the aim of 
implementing them nation-wide, should they prove 
successful:

A pilot project should be attempted to provide lump sum 
block grants to municipalities and to allow them to 
determine eligibility, to run their own employment-
enhancement programs and to establish job training and 
child care assistance. An assessment of the success or 
failure of this approach in a limited number of 
municipalities can be done after one year of operation.

The unemployed worker, who participates in the second pilot 
project, should be provided with a choice. He could either 
receive a lump sum or be eligible for a longer period of 
unemployment benefits. Alternatively, he can be provided 
with a choice to either receive a larger lump sum or to 
receive regular unemployment benefits. In other words: he 
will be allowed to convert all or part of his unemployment 
benefits to a lump sum. The lump sum should represent no 
more than 9 months of unemployment benefits reduced to 
their net present value (NPV).




The third pilot project involves the formation of private 
unemployment insurance plans to supplement or even replace 
the insurance (compensation, benefits) offered by the 
Employment Fund. In many countries, private unemployment 
insurance is lumped together with disability and life 
insurance – all offered by the private sector within one 
insurance policy.

The fourth and last pilot project involves the formation of 
“Voucher Communities”. These are communities of unemployed 
workers organized in each municipality. The unemployed 
exchange goods and services among themselves. They use a 
form of “internal money” – a voucher bearing a money value. 
Thus, an unemployed electrician can offer his services to 
an unemployed teacher who, in return will give the 
electrician’s children private lessons. They will pay each 
other with voucher money. The unemployed will be allowed to 
use voucher money to pay for certain public goods and 
services (such as health and education). Voucher money will 
not be redeemed or converted to real money – so it has no 
inflationary or fiscal effects, though it does increase the 
purchasing power of the unemployed. 

Encouraging Employers to Hire the Unemployed

The principle governing any incentive scheme intended to 
encourage employers to hire hitherto unemployed workers 
must be that the employer will get increasing participation 
in the wage costs of the newly hired formerly unemployed 
workers – more with every year the person remains employed. 
Thus, a graduated incentive scale has to be part of any law 
and incentive plan. Example: employers will get increasing 
participation in wage costs – more with every 6 months the 
person has been unemployed by them.

Additionally, employers must undertake to employ the worker 
a number of months equal to the number of months they 
received benefits for the worker and with the same salary. 
It would be even better if the incentives to the employer 
were to be paid for every SECOND month of employment. Thus, 
the employer would have an incentive to continue to employ 
the new worker.

Employers will receive benefits for a new worker only if he 
was registered with an unemployment office for 6 
consecutive months preceding his new employment.

I recommend linking the size of investment incentives 
(including tax holidays) to the potential increase in 
employment deriving from the investment project.

Encouraging Labour Mobility

Workers must be encouraged to respond promptly and 
positively to employment signals, even if it means 
relocating. We recommend obliging a worker to accept any 
job offered to him in a geographical radius of 100 km from 
his place of residence. Rejection of such work offered (“it 
is too far”) should result in a loss of the “unemployed” 
status and any benefits attaching thereof. On the other 
hand, the Employment Bureau should offer financial and 
logistical assistance in relocation and incentives to 
relocate to areas of high labour demand. The needs of the 
unemployed worker’s family should also be considered and 
catered to (kindergarten or school for his children, work 
for his wife and so on). 

Fixed term labour contracts with a lower cost of dismissal 
and a simplified procedure for firing workers must be 
allowed (see details below).

I recommend altering the Labour Relations Law to allow more 
flexible hiring and firing procedures. Currently, to 
dismiss a worker, the employee has to show that it has 
restricted hiring, applied workforce attrition and reduced 
overall overtime prior to dismissing the worker. The latter 
has recourse to the courts against the former. This 
recourse should be eliminated and replaced with 
conciliation, mediation, or arbitration (see below for 
details).

Reforms in the Minimum Wage

The minimum wage is an obstacle to the formation of new 
workplaces (see analysis in the next chapter). It needs to 
be reformed.

I propose a scaled minimum wage, age-related and means 
tested and also connected to skills. 

In other words, the minimum wage should vary according to 
age, other (non-wage) income and skills.

Administrative Measures: Early Retirement

Macedonia must allow the employer to encourage the early 
retirement of workers which otherwise might be rendered 
technologically redundant. Early retirement is an efficient 
mechanism to deal with under-employment and hidden 
unemployment. 

Romania ameliorated its unemployment problem largely 
through early retirement. 

Offering a severance package, which includes a handsome up-
front payment combined with benefits from the Employment 
Fund, can encourage early retirement. A special Early 
Retirement Fund can be created by setting aside receipts 
from the privatization of state assets and from dividends 
received by the state from its various shareholdings, to 
provide excess severance fees in case of early retirement.

Administrative Measures: Reduction of Working Hours

Another classic administrative measure (lately implemented 
in France) is a reduction in the standard working week (in 
the number of working hours). For reasons analyzed in the 
next chapter, we recommend NOT to implement such a move, 
despite its obvious (though false) allure.

Administrative Measures: Public Works

All the medically capable unemployed should be compulsorily 
engaged in public works for a salary equal to their 
unemployment benefits (Workfare). A refusal by the 
unemployed person to be engaged in public works should 
result in the revocation of his “unemployed” status and of 
all the benefits attaching thereto.

Generally, we would not have recommended public works. 




From the Encyclopedia Britannica: 

“The weakness in the proposal to use disguised unemployment 
for the construction of social overhead capital projects 
arises from inadequate consideration of the problem of 
providing necessary subsistence funds to maintain the 
workers during the long waiting period before the projects 
yield consumable output. This can be managed somehow for 
small-scale local community projects when workers are 
maintained in situ by their relatives – but not when 
workers move away. The only way to raise subsistence funds 
is to encourage voluntary savings and expansion of 
marketable surplus of food purchased with these savings.” 

But public works financed by grants or soft loans can serve 
as an interim “unemployment sink” – a buffer against wild 
upswings in unemployment.

The situation in Macedonia is so extreme, that it is 
comparable only to the Great Depression in the USA.

In the USA, in 1932, the Civilian Conservation Corps (CCC) 
was established to tackle nature conservation work for the 
young and unmarried men. They planted trees, erected flood 
barriers, put out forest fires and constructed forest roads 
and trails. They lived in work camps under a semi-military 
regime. They were provided with food rations and a modest 
monthly cash allowance, medical care and other necessities. 
The CCC employed 500,000 people at its peak – and 3 million 
people throughout its existence.

In any case, there is always the danger that public works 
will simply displace existing employment. Labour union and 
local municipality endorsements should, therefore, be 
strictly observed.

Administrative Measures: Public Education and Dissemination 
of Information – The Functioning of the Employment Bureau




The dissemination of information regarding employment 
practices, opportunities, market requirements, etc. should 
be a prime component of the activity of the Employment 
Bureau. It must transform itself from a mere registry of 
humans to an active exchange of labour. This can be done 
through computerized employment exchanges and 
intermediation.

To change the image of the Employment Bureaus from places 
where the unemployed merely registers and receive benefits 
to a labour exchange can be done by publishing examples of 
successful job placements.

I recommend to prominently display and disseminate 
information regarding the rights of the unemployed, their 
obligations and services available to them and to publish 
weekly or daily employment bulletins.

To organize seminars to the unemployed and to employers in 
which the rights of the unemployed, their obligations and 
the services offered to them and to their potential 
employers will be described. This can be combined with 
employment fairs. Separately, the unemployed should be 
taught in these seminars how to find a job, prepare a 
curriculum vita (biography), entrepreneurial skills, 
preparation of business plans, marketing plans, feasibility 
studies, credit applications and interview skills. 

The Employment Bureaus in collaboration with the local 
authorities should organize job clubs, labour exchanges and 
employment fairs – places where employers can meet 
potential employees, currently unemployed.

I recommend to oblige the mass media by law to dedicate at 
least an hour weekly (could be broken to as many as 4 
segments of 15 minutes each) to unemployment: disseminate 
information, organize a televised labour exchange, a 
televised entertainment show (where employers will offer a 
job to a winner) and so on.

I recommend to link by a Wide Area Network (WAN) or 
Intranet with firewalls the National Employment Bureau, the 
Health Fund, the Pension and Disability Insurance Fund and 
the Social Security Office. To cross and compare 
information from all these bureaus on a real time basis (to 
specifically cater to the needs of an unemployed person) 
and on a periodical basis for supervision and control 
purposes.

The National Employment Bureau should maintain a regular 
presence in employment fairs abroad. Many fairs are global 
and work can be obtained in them for Macedonian workers 
(especially the more skilled).

A National employment Contract

A “National Employment Contract” should be signed between 
the government, the trade unions, the employers (Chamber of 
Commerce) and the Central Bank. All parties will have to 
concede some things.
The Employers will guarantee the formation of new work 
places against a freeze on employee compensation, a 
separate treatment of part time labour (exclusion from 
collective bargaining), flexibility on minimum wages and 
with regards to job security, hiring and firing procedures, 
social and unemployment benefits, indexation of wages and 
benefits, the right to strike and the level of salaries. 
The employers will obligate themselves to fixed 
quantitative targets over a number of years against the 
receipt of the unemployment benefits of the newly hired (or 
another form of subsidy or tax incentive) and/or a discount 
in social contributions.
The National Employment Contract should aim to constrain 
inflation by limiting wage gains to productivity gains (for 
instance, through dividends on the shareholdings of the 
workers or through stock options schemes to the workers). 
In return, the trade unions will be granted effective 
control of the shop floor. This is the neo-corporatist 
approach. 
It means that the tripartite social contract will increase 
employment by moderating wage demands but the unions will 
control policies regarding unemployment insurance, 
employment protection, early retirement, working hours, old 
age pensioners, health insurance, housing, taxation, public 
sector employment, vocational training, regional aid and 
subsidies to declining and infant industries.
In Sweden and Germany there is co-determination. Workers 
have a quasi-constitutional shop floor representation even 
in non-wage related matters (such as the work 
organization).



Many countries instituted an “Incomes Policy” intended to 
ensure that employers, pressurized by unions, do not raise 
wages and prices. In Sweden, for instance, both labour and 
management organizations are responsible to maintain price 
stability. The government can intervene in the negotiations 
and it can always wield the whip of a wage freeze, or wage 
AND price controls. In Holland the courts can set wages. 
Wages and unemployment benefits are perceived as 
complementary economic stabilizers (contra the business 
cycle). 

Another possibility is a Guaranteed Wage Plan – Employers 
assure minimum annual employment or minimum annual wages or 
both to those employees who have been with the firm for a 
minimum of time.

Firms and trade unions must forego the seniority treatment 
(firing only the newly hired – LIFO, last in first out). 
The firm should be given a free hand in hiring and firing 
its employees regardless of tenure.

Labour Disputes Settlement

The future collective agreements should all be subordinated 
to the National Employment Contract. All these agreements 
should include a compulsory dispute settlement through 
mediation and arbitration. All labour contracts must 
include clear, compulsory and final grievance procedures. 
Possibilities include conciliation (a third party bring 
management and labour together to try and solve the 
problems on their own), mediation (a third party makes 
nonbonding suggestions to the parties) and arbitration (a 
third party makes final, binding decisions), or Peer Review 
Panels – where the management and the employees together 
rule on grievances.

I recommend allowing out of court settlement of disputes 
arising from the dismissal of employees through 
arbitration, an employees' council, trustees or an 
employer-employee board.




Unconventional Modes of Work

Work used to be a simple affair of 7 to 3. It is no longer 
the case.

In Denmark, the worker can take a special leave. He 
receives 80% of the maximum unemployment benefits plus no 
interruption in social security providing he uses the time 
for job training, a sabbatical or further education, or a 
parental leave. This can be extended to taking care of old 
people (old parents or other relatives) or the terminally 
ill – as is the case in Belgium (though only for up to 2 
months). It makes economic sense, because their activities 
replace social outlays.

In Britain, part time workers receive the same benefits in 
case of layoffs and wrongful dismissals and in Holland, the 
pension funds grant pensions to part time workers.

Special treatment should be granted by law and in the 
collective agreements to night, shift and weekend work (for 
instance, no payment of social benefits).

All modes of part-time, flextime, from home, seasonal, 
casual and job sharing work should be encouraged. For 
example: two people sharing the same job should be allowed 
to choose to be treated, for tax purposes and for the 
purposes of unemployment benefits, either as one person or 
as two persons and so should shift workers. In Bulgaria, a 
national part time employment program encouraged employers 
to hire the unemployed on a short term, part time basis 
(like our Mladinska Zadruga).

Macroeconomic Policies

The macroeconomic policies of Macedonia are severely 
constrained by its international obligations to the IMF and 
the World Bank. Generally, a country can ease interest 
rates, or provide a fiscal boost to the economy by slashing 
taxes or by deficit spending.
Counter-cyclical fiscal policies are lagging and as a 
result they tend to exacerbate the trend. Fiscal boosts 
tend to coincide with booms and fiscal contraction with 
recessions.
In view of the budget constraints (more than 97% of the 
budget is “locked in”), it is not practical to expect any 
employment boost either from the monetary policy or from 
the fiscal policies of the state in Macedonia.

What I do recommend is to introduce a “Full Employment 
Budget” (see details in Appendix number I). A full 
employment budget adjusts the budget deficit or surplus in 
relation to effects of deviations from full or normal 
unemployment. Thus, a simple balanced budget could be 
actually contractionary. A simple deficit may, actually, be 
a surplus on a full employment basis and a government can 
be contractionary despite positive borrowing.

Apprenticeship, Training, Retraining and Re-qualification

The law should be amended to allow for apprenticeship and 
training with training sub-minimum wages. Mandatory 
training or apprenticeship is a beneficial rigidity because 
it encourages skill gaining. Germany is an excellent 
example of the benefits of a well-developed apprenticeship 
program.

Most of the unemployed can be retrained, regardless of age 
and level of education. This surprising result has emerged 
from many studies.

The massive retraining and re-qualification programs needed 
to combat unemployment in Macedonia can be undertaken in 
collaboration with the private sector. The government will 
train, re-train, or re-qualify the unemployed worker – and 
the private sector firms will undertake to employ the 
retrained worker for a minimum period of time following the 
completion of his or her training or retraining. Actually, 
the government should be the educational sub-contractor of 
the business sector, a catalyst of skill acquisition for 
the under-capitalized private sector. Small business 
employers should have the priority in this scheme.

There should be separate retraining and re-qualification 
programs according to the educational levels of the 
populations of the trainees and to the aims of the 
programs. Thus, vocational training should be separated 
from teaching basic literacy and numeracy skills. 
Additionally, entrepreneurship skills should be developed 
in small business skill training programs and in programs 
designed to enhance the management skills of existing 
entrepreneurs.

All retraining and re-qualification programs should double 
as advisory services. . The instructors / guides / 
lecturers should be obliged to provide legal, marketing, 
financial, sales-related or other consulting. Student who 
will volunteer to teach basic skills will be eligible to 
receive university credits and scholarships. 

Entrepreneurship and Small Businesses

Small businesses are the engine of growth and job creation 
in all modern economies. In the long run, the formation of 
small businesses is Macedonia’s only hope. The government 
should encourage the provision of micro-credits and 
facilities to set up small and home-based businesses by the 
banking system. In the absence of reaction from or 
collaboration with the banking system, the state itself 
should step in to provide these funds and facilities 
(physical facilities and services – such as business 
incubators).

Thus, the state should encourage small businesses through 
microcredits, incubators, tax credits, and preference to 
small businesses in government procurement.

II.	The Facts

Labour Mobility, Unemployment Benefits and Minimum Wages

We are all under the spell of magic words such as 
“mobility”, “globalization” and “flextime”. It seems as 
though we move around more frequently, that we change jobs 
more often and that our jobs are less secure. The facts, 
though, are different.
The world is less globalized today than it was at the 
beginning of the century. Job tenure has not declined (in 
the first 8 years of every job) and labour mobility did not 
increase despite foreign competition, technological change 
and labour market deregulation. The latter led to an 
enhanced flexibility of firms and of hiring and firing 
practices (temporary or part time workers) but this is 
because many workers actually prefer casual work with 
temporary contracts to a permanent position. 
Granted, people have been and are moving from failing firms 
and declining industries to successful ones and booming 
sectors. But they are still reluctant to change residence, 
let alone emigrate. Thus, jobs remain equally stable in 
deregulated as in regulated labour markets.
Yet, this phobia of losing one’s job (arising from the 
aforementioned erroneous beliefs) serves to increase both 
the efficiency and productivity of workers and to moderate 
their wage claims. 
It is safe to assume that collective bargaining led to 
increased wages and, thus, to less hiring and less flexible 
labour markets. It is therefore surprising to note that 
despite the declining share of unionized labour in two 
thirds of the OECD countries – unemployment remained 
stubbornly high. But a closer look reveals why. Both France 
and the Netherlands (where unionized labour declined from 
35% of the actually employed to 26%), for instance, 
extended the coverage of collective agreements to non-
unionized labour. It is only where both union membership 
and coverage by collective agreements were both reduced 
(USA, UK, New Zealand, Australia) that employment reacted 
favourably. Thus, at the one extreme we find the USA and 
Canada where agreements are signed at the firm or even 
individual plant level. At the other pole we have 
Scandinavia where a single national agreement prevails. All 
the rest are hybrid cases. Britain, New Zealand and Sweden 
decentralized their collective bargaining processes while 
Norway and Portugal centralized it. The evidence produced 
by hybrid cases is not conclusive. Decentralized bargaining 
clearly reduced wage pressures but centralized bargaining 
also moderated wage demands (union leaders tended to 
consider the welfare of the whole workforce. Still, it 
seems that it is much preferable to choose one extreme or 
the other rather than opt for hybrid bargaining. The worst 
results, for instance, were obtained with national 
bargaining for specific industries. Hybrid Europe saw its 
unemployment soar from 3 to 11% in the last 25 years. Pure 
system USA maintained its low rate of 4-5% during the same 
quarter century. These opposing moves cannot be attributed 
to monetary or fiscal policies. This is because all 
economic policies are geared towards increasing employment. 
Budget cuts, for instance, depress demand and job formation 
in the short term but, by lowering real interest rates, 
they encourage investment and job formation in the longer 
term. 
The cycle is:
Employment protection laws make it hard to fire workers and 
hard for fired workers to find new jobs. The longer one is 
unemployed, the lesser the chances of employment. Skills 
rust and the long term unemployed become the unemployable. 
Gradually, desperation sets in and the unemployed stop 
looking for a job. Their absence is conspicuous in that 
they do not restrain the wages paid to the employed. They 
have become part of the structural unemployment.
Blanchard and Wolfers studied 20 countries between the 
years 1960-96. They applied 8 market rigidities to their 
subjects. The average unemployment increased by 7.2% in 
this period. But in countries with strict employment 
protection unemployment rose by double the amount in 
countries with lax labour legislation. The country with the 
most generous unemployment benefits saw its unemployment 
rate grow by five times the rate of the stingiest country. 
And in countries with highly coordinated wage bargaining, 
unemployment has grown by four times its growth in 
countries with decentralized bargaining. 
It is difficult to isolate these parameters from the 
general decline in productivity, the increase in real 
interest rates and technological change and restructuring. 
Still, the results are fairly unequivocal. Other research 
(the 1994 OECD one year study, the DiTella-MacCullouch 
study) seems to support these discoveries:
That flexibility is a good thing. It encourages employment, 
it leads to higher output and to a higher GDP per capita. 
The reason a transition from a rigid to a flexible labour 
market does not yield immediate results is that it 
increases the participation in the labour force. The rate 
of unemployment is, thus, affected only later, it lags the 
changes. But flexibility leads to lower rates of unfilled 
vacancies and to a lower persistence of unemployment over 
time.
Unemployment in Europe is structural (in Germany it has 
been estimated to be as high as 8.9%). It is the cumulative 
result of decades of centralized wage bargaining, strict 
job protection laws, and over-generous employment benefits. 
The IMF puts structural unemployment in Europe at 9%. This 
is while the USA’s structural rate is 5-6% and the UK 
reduced its own from 9% to 6%. The remedies, though well 
known, are politically not palatable: flexible wages, 
highly mobile labour, flexible fiscal policy.
Deregulation makes labour markets more flexible because it 
forces the worker to accept almost any job. Cutting or 
limiting jobless benefits has largely the same effect. 
Employers feel more prone to hire people if they can 
negotiate their wages with them directly and on a case-by-
case basis and if they can fire them at will. Hence the 
debilitating effect of minimum wages and other wage 
controls as well as of job protection laws.
But all these steps must be implemented together because of 
their synergy. Research has demonstrated the impotence and 
inefficacy of half hearted half measures.



Some hesitant steps have been adopted by the governments of 
Germany and France (which trimmed jobless benefits), by 
Italy (which stopped linking benefits to inflation), by 
Belgium, Spain and France, which reduced the minimum wage 
payable to young people. Spain established two classes of 
workers with an increased bargaining power granted to those 
with permanent employment. Yet, some measures yielded quite 
unexpected and unwanted results. France legislated a 
reduced working week. Other countries imposed a freeze on 
hiring with the aim of attrition of the workforce through 
retirement. Yet, these last two remedies led to an increase 
in the bargaining power of the remaining workers and to 
real wage increases.
The only clear causal relationship is between unemployment 
benefits and the level of employment. The lower the 
unemployment benefits, the more people seek work and wages 
decrease. As a result, firms hire more workers. But, firms 
hire even more when dismissing workers is made easier and 
cheaper. 
Paradoxically, the easier it is to fire workers, the more 
workers firms are willing to take on and the more secure 
workers feel knowing that their chances of being hired are 
better. They look harder for work and find it, reducing the 
level of unemployment and the costs to the state of jobless 
benefits. Having to spend less on unemployment benefits, 
the government can either cut taxes of improve the 
allocation of its resources. In both cases the economy 
improves and provides an added incentive to work. This is 
because, in a vigorous growth economy, the value of an 
extra worker is higher than the combined costs of his 
hiring and firing. This is especially true since the 
reservoir of the unemployed is comprised of the unskilled, 
the young and women, whose remuneration is closer to the 
minimum wage. In the USA the minimum wage is 35% of the 
average wage (in France, it is 60%, in Britain it is 45% 
and in the Netherlands it is declining relative to the 
median salary). It is a fact that when wages are downward 
flexible – more lowly skilled jobs are created. A 1% rise 
in the minimum wage reduces the probability of finding a 
job by 2-2.5%.
There is a debate raging between the proponents of minimum 
wages (they reduce poverty and increase the equality of 
wealth distribution) and their opponents (they destroy 
jobs). The OECD stated clearly that wage regulation 
couldn’t deal with poverty. The reason is that, as opposed 
to common opinion, few low paid workers live in low-income 
households and few low-income households have low paid 
workers. Thus, the benefits of the minimum wage, such as 
they are, largely bypass the poor.
Again, it is important to realize that unemployment is not 
a universal phenomenon. It is concentrated among the young 
and the unskilled. 11% of all people under the age of 25 in 
the USA are unemployed, almost three times the national 
average. A shocking 28% of those under the age of 25 are 
unemployed in France. The OECD says that a 10% rise in the 
minimum wage reduces teenage employment by 2-4% in both the 
high and low minimum wage countries. 
In view of these facts, many countries (USA, UK, France) 
introduce “training wages” – actually, minimum wage 
exemptions for the young. But the minimum wage is still a 
high percentage of mean youth earnings (53% in the USA and 
72% in France) and thus has a prohibitive effect on youth 
employment.
There is no disputing the facts that minimum wages compress 
the earnings distribution and reduce wage disparities 
between ages and sexes but they have no effect on 
inequality and the reduction of poverty among households. 
In US households with less than half the median household 
income only 33% of the adults have a low paid job (The 
equivalent figure in the Netherlands is 13% and in the UK – 
5%). In most poor households no one is employed at all. On 
the other hand, many low earners have high paid partners. 
In the USA only 33% of earners of less than two thirds of 
the median wage live in households whose income is less 
than 50% of the national median household income. In the UK 
the figure is 10% and in Ireland – 3%. In each 5-year 
period only 25% of low paid Americans are in a poor family 
at some point (the figure is 10% in the UK).
These statistics show that minimum wages hurt poor families 
with teenagers (by making teenage employment prohibitive) 
while benefiting mainly the middle class.

Unemployment and Inflation

Another common misperception is that there is some trade 
off between unemployment and inflation. Both Friedman and 
Phelps attacked this notion. Unemployment seems to have a 
“natural” (equilibrium or homeostatic) rate, which is 
determined by the structure of the labour market. The 
natural rate of unemployment is consistent with stable 
inflation (NAIRU – Non Accelerating Inflation Rate of 
Unemployment). 



Making more people employable at the prevailing level of 
wages can lower NAIRU. This should lead to a big drop in 
unemployment together with a tiny increase in permanent 
inflation. Phelps actually sought to lower NAIRU and raise 
the incomes of the working poor. Stiglitz calculated that 
the changing demographics of the labour force and the3 
competition in markets for goods and jobs reduced NAIRU by 
1.5% in the USA. R. Gordon, D. Staiger and M. Watson 
support these findings. 
It emerges, therefore, that the gap between the estimated 
NAIRU and the actual rate of unemployment is a good 
predictor of inflation.

The Rhineland Model the Poldermodel and Other European 
Ideas

The Anglo-Saxon variety of capitalism is intended to 
maximize value for shareholders (often at the expense of 
all others, including the workers).
The Rhineland model is capitalism with a human face. It 
calls for an economy of consultation among stakeholders 
(shareholders, management, workers, government, banks, 
other creditors, suppliers, etc.)
In the Netherlands there is a Social and Economic Council. 
Its role is advisory and it is semi-corporatist. Another 
institution, the Labour Foundation is a social partnership 
between employees and employers.

But the Netherlands succeeded in reducing its unemployment 
rate from 17% to less than 5% by ignoring both models and 
inventing the “Poldermodel”, a Third Way. Wim Duisenberg, 
the Dutch Banker (currently Governor of the European 
Central Bank), attributed this success to four elements:

Improving state finances
Pruning social security and other benefits and transfers
Flexible labour markets
Stable exchange rate.

The Dutch miracle started in 1982 with the Wassenaar 
Agreement in which employers’ organizations and trade 
unions agreed on wage moderation and job creation, mainly 
through decentralization of wage bargaining. The government 
contributed tax cuts (which served to replace forgone wage 
increases). This fiscal stimulus prevented a drop in demand 
as a result of wage moderation. Additionally, restrictions 
were placed on social security payments and the minimum 
wage. For instance, increases in wages were no longer 
matched by corresponding increases in minimum social 
benefits. Working hours, hiring, firing and collective 
bargaining were all opened up to labour market forces. The 
strict regulation of small and medium size businesses 
(which drove up labour costs) was relaxed. Generous social 
security and unemployment benefits (a disincentive to find 
work) were scaled back. The Netherlands did not shy from 
initiating public works projects, though on a much smaller 
scale than France, for instance. The latter financed these 
projects by raising taxes and by increasing its budget 
deficit. The result could well be a reduction in employment 
in the long run (the effect of taxation). In the absence of 
monetary instruments such as devaluation (due to the EMU), 
the only remedy seems to be labour market flexibility. 

Such flexibility must include a substantial adjustment in 
sickness benefits, vacation periods, maternal leave and 
unemployment benefits. 

The long term (more than 12 months) unemployment in Europe 
constitutes 40% of the total unemployment. About HALF of 
the entire workforce under the age of 24 is unemployed in 
Spain. It is about 28% in France and in Italy. Germany, 
Austria and Denmark escaped this fate only by instituting 
compulsory apprenticeship. But the young become the kernel 
of long-term unemployment. This is because a tug of war, a 
basic conflict of interests exists between the “haves” and 
“have-nots”. The employed wish to defend their monopoly and 
they form labour cartels. This is especially true in 
dirigiste Europe.

While in the USA, 85% of all service jobs created between 
1990-5 paid more than the average salary – this was not the 
case in Europe. Add to this the immobility of labour in 
Europe and a stable geographical distribution of 
unemployment emerges, not ameliorated by labour mobility. 

The Dutch model sought to battle all these rigidities:

The Dutch reduced social security contributions from 20% 
(1989) to 7.9% and they halved the income tax rate to 7% 
(1994).
They allowed part time workers to be paid less than full 
timers, doing the same job.
They abandoned sectoral central bargaining in favour of 
national bargaining – but more decentralized.
They cut sickness benefits, unemployment insurance 
(benefits) and disability insurance payments (by 10% in 
1991 alone – from 80% to 70%).
They made it harder to qualify for unemployment (in 1995 no 
benefits were paid to those who chose to remain 
unemployed).
The burden of supporting the sick was shifted to the 
employer / firm. In 1996, the employer was responsible to 
pay the first year of sickness benefits.

Even the Dutch model is not a success. More than 13% of the 
population is receiving disability benefits. Only 62% of 
the economically active population is in the workforce (the 
rest dropped out of it). 

But compare its experience to France, for instance.

The LOI ROBIEN prescribes that companies should be spared 
social security obligations for 7 years if they agree to 
put workers on part time work instead of laying them off. 
Firms abused the law and restructured themselves at the 
government’s expense. 

The next initiative was to reduce the working week to 35 
hours. This was based on the “Lump of Labour Fallacy” – the 
idea that there is a fixed quantity of work and that 
reducing the working week from 39 to 35 hours will create 
more jobs. In reality, though, labour demand changes only 
in response to changes in productivity and in the workings 
of the labour market itself (rigidities). A cut in the 
working week reduces productivity and destroys jobs rather 
than foster job formation.

In Spain, a permanent employee fired is entitled to receive 
up to 45 days’ pay multiplied by his or her tenure in 
years. The result is that firms are afraid to hire or fire 
workers. The government – faced with more than 22% 
unemployment – permitted part time contracts with less job 
protection. Today, 30% of all employed Spaniards work this 
way. Yet, this led to the creation of a two-tiered 
workplace where it is easier to fire the part-timer (even 
if he is valuable) rather than the permanent (and better 
earning) worker. Additionally, wages are thus disconnected 
from productivity.




MACEDONIA

Summary

As privatization progressed (however flawed in concept and 
in implementation), unemployment rose. It was the result of 
redundancies, bankruptcies and restructuring of the new 
private enterprises. By 1998, more than 92,000 workers were 
involved in direct privatization. There were more than 
210,000 workers involved in all enterprises privatized. 
The unemployment rate shot up from 23.5% in 1990 to more 
than 41% (foreign estimates) today (or 34% officially).
While officially the labour-force stands at c. 800,000 
people, in reality it comprises only 600,000 (down from 
680,000 in 1990). The number of central government 
employees has remained fairly stable at c. 17,000. About 
2,400 are employed in cooperatives, another 22,600 in the 
pure private sector and c. 92,000 in firms with mixed 
ownership.
About 4000 are in government subsidized retraining programs 
at any given moment. Others are retrained within the Labour 
Redeployment program run by the Agency of Privatization.
Unemployment compensation recipients rose from 5,400 in 
1990 to more than 50,000 in 1997.
Mandatory employer payroll tax contribution is 20% 
(pension) and the employee pays 8% to the Health Fund.

Numerous laws and legal instruments govern employment and 
unemployment in Macedonia. Among them:

The Law on Labour Relations, the Law on Employment, the 
Collective Bargaining Agreement, the Law on Pension and 
Disability Insurance, the Law on Health Protection at Work, 
the Law on Labour Inspection, the Law on Industrial Action 
and the July 1997 Law on Employment and Insurance in the 
case of Unemployment (now largely defunct).




The most important law by far is the Law on Labour 
Relations. It regulates the terms and manner of entering 
employment, the rights of employees, job positions, 
salaries and other compensation. Unfortunately, it is an 
extremely general and vague law. The collective agreements, 
the second most important legal instruments, are as general 
and, in any case, they pertain mainly if not solely to 
their signatories. 

The collective agreements usually provide for an 
“employment trial period”. But the law itself equates the 
rights of the temporarily employed to those of the 
permanently employed. 

The 1997 law allowed the hiring of workers without the 
assistance or approval of the Employment Bureau. It 
demanded that the unemployed should actively seek gainful 
employment to qualify to receive unemployment benefits. It 
reduced both the amount and the duration of unemployment 
benefits payable to certain groups of unemployed workers. 
It introduced payments of pension contributions and health 
care fund contributions of registered unemployed workers 
who are not covered elsewhere (for example, by their 
parents, or their spouse).
The law eliminated special one-time payments to the 
unemployed who could claim a right to a pension equal to 
40% of the average monthly net wages.
It mandated the monthly registration of recipients of 
benefits and the bi-annual registration of all other 
unemployed.
Under this law, workers with 15 years of participation in 
the workforce and contributions to the fund will receive 
unemployment benefits for 6 months. Those with more than 25 
years will receive unemployment benefits indefinitely. 
Additionally, employers were allowed to use up to 18 months 
of unpaid payroll taxes to subsidize the wages of 
previously unemployed workers hired by them. This provision 
has been eliminated.




Analysis

There are a few statistical methods used to gauge 
employment-related data. The easiest, most immediate but 
least reliable way is to count the number of people 
registered with the Employment Bureau (“claimants”). A 
claimant count tends to underestimate unemployment by up to 
50% (!) because many people are so desperate that they do 
not bother to register with the unemployment bureau. 
The second method which is more demanding, resource 
consuming and has a time lag – is also more rigorous and a 
much better gauge of reality. It is the household survey. 
Britain, for instance, estimates unemployment using BOTH 
methods.

The Statistical Bureau in Macedonia defines and Employee as 
someone who is employed at least one hour in the week prior 
to being sampled, whether in a part time job or in a 
permanent, full time one. People attending an 
apprenticeship program or sentenced to correctional labour 
are excluded (unlike in Germany, Austria or Denmark).
It follows that the unemployed are people seeking 
employment. Anyone without a job, but previously employed 
and recorded in an employment office is defined as an 
“earlier employed person”. Applicants who held no job 
before are “first time applicants”.
Self-employed workers are all people included in TRUD-15, a 
quarterly report filed with the Pension and Disability 
Fund. This report includes only those currently insured and 
it, too, does not cover vocational students and 
apprentices. It is, therefore, safe to assume that the 
number of the self employed in Macedonia is larger than 
reported.

If the index representing total employment in Macedonia in 
1989 was 100.3 – it was 62 in 1997. The figure for women 
was marginally higher.

Total employment in the economic sector went down by more 
than 40% between 1989-97.



The strongest declines were in trade and in tourism and 
catering. But severe drops were registered in mining and 
industry, agriculture and fisheries, forestry (which was 
already depressed in 1989). Only water treatment and 
management and crafts and trades – actually increased. But 
construction, transport and communications, and, to a 
lesser extent, housing, utilities, landscaping, financial, 
technical and business services also declined.

Total employment in the non-economic sector was almost 
unaffected !!!
Even in sectors such as education, science, culture and 
information and healthcare and social services, the effects 
were minimal.
And in administration and politics there was actually an 
INCREASE.

The total employed declined from c. 517,000 (1989) to less 
than 320,000 in 1997.
The total in the economic sectors declined from 430,000 to 
270,000.
The total in the non-economic sectors declined from c. 
90,000 to 84,000.
The female population reacted more strongly to the trend. 
Female employment declined from 133,000 in 1995 to less 
than 122,000 in 1997.
Less than 73,000 women were employed in the economic sector 
in 1997, compared to more than 84,000 in 1995. In the non-
economic sector, the figures are 49,000 and 49,000 
respectively (in other words, employment in the non 
economic sector remained stable while even as it declined 
strongly in the economic sector).

To summarize:

In 1997, all employed people numbered c. 319,453 (of whom 
121,666 were women).
In the economic sector: 235,206 (72359)
In companies with social ownership: 185522 (70,094), of 
which 121,663 were in the economic sector (30,835 women). 
In privately owned firms the figure is – 22, 593 (of whom 
21,910 in the economic sector). Women accounted for 10,492 
(10,252 in the economic sector) of this number.
2414 workers (629 women) worked in cooperatives (all part 
of the economic sector).
Firms with mixed ownership employed 91,988 (31,854 women).
Of these employees, 88,799 (30,548) were in the economic 
sector.
State owned firms, institutions and organs employed 16,936 
workers (8,597 women). Of these only 420 were engaged in 
economic activities (95 women).
The (monthly) demand for workers declined from 6,619 in 
1989 to 1,907 in 1996. Concurrently, monthly layoffs 
doubled from 1,408 to 2,805. First time applicants for 
unemployment benefits peaked monthly at 3,847 in 1992 and 
declined to 2,073 in 1996. This is a bad sign – it 
indicates growing desperation among the long term (more 
than 12 months) unemployed.
New hiring virtually collapsed from 1,506 monthly in 1989 
to 972 in 1997. Yet, this grim picture has to be balanced 
by mentioning that many people are unofficially employed 
and not registered anywhere.
The total number of employment seekers (in parentheses – 
the number of women) has gone up from 150,400 (78,075) in 
1989 to c. 253,000 (115,000) in 1997. But this is 
misleading because fully 200,000 people have dropped from 
the workforce and have given up seeking employment. 
First time applicants went up from 116,000 to 186,000 in 
the same period.
In 1989 only 75,000 unskilled workers were jobless. In 1997 
the number almost doubled to 133,000.
And while only 5,800 received unemployment compensation in 
1989 – their numbers multiplied by 10 (!) and reached over 
50,000 in 1997.
Due to improvements in education on the one hand and to 
growing desperation on the other hand – almost no people 
younger than 18 years were looking for jobs in 1997 (only 
1,700) compared to 1989 (11,900). 
To a large extent, the same is true for the 18-25 age 
groups. 70,400 sought work in 1989 versus 60,100 in 1997.
But the pernicious and lasting effects of unemployment were 
more than evident in the next age groups. In the age groups 
25-40 the number of e4mployment seekers increased from 
55,200 to 135,000 in the same period. The number of people 
between the ages 40-50 seeking work quadrupled (!) from 
10,500 to 39,500. The same goes for people over the age of 
50 (from 5,500 to 21,500).
By far the largest group of employment seekers was people 
with no previous work experience (128,400 in 1989 and 
180,700 in 1997).



The situation was much better in all other groups of work 
experience:
Less than 1 year experience – from 6,300 (1989) to 7,900 
(1997)
1-2 years – 3,500 to 5,000
2-3 years – 2,500 to 3,600
3-5 years – 3,400 to 5,700
5-10 years – 5,300 to 13,200
10-20 years – 3,200 to 18,200
20-30 years – 800 to 11,700
The number of unemployed people with more than 30 years 
experience went up – from 100 in 1989 to 3,100 in 1997.

The time structure of unemployment has also worsened. 
In 1989 22,900 found employment within 6 month. In 1997 – 
there were only 6,100.
Within 6-9 months – from 8,300 to 4,100
Within 9-12 months – from 8,000 to 5,000
Between 1-3 years – from 51,300 to 71,600
Between 3-5 years – from 28,500 to 49,500 (!!!)
Between 5-8 years – from 20,700 to 49,900 (!!!)
More than 8 years – from 13,800 to 71,400 (!!!!!!!)

In other words, most of the employment seekers have to wait 
for years before they gain employment. About 30% of them 
wait for more than 8 years. This is nothing short of 
disastrous.

Unemployment is concentrated, therefore, among the 
relatively young and without work experience. Additionally, 
the skilled and highly skilled workers have lesser 
difficulties in finding a job. Only 46,000 of them were 
employment seekers in 1997 (compared to 26,000 in 1989). 
The semi-skilled and those with elementary school are the 
most vulnerable, with 132,800 employment seekers (versus 
75,200 in 1989). Even those with secondary school training 
fared badly, with 74,200 employment seekers (versus 49,300 
in 1989).




The Workforce Survey

Macedonia has executed a workforce survey for the first 
time in 1996. 
In this survey the following definitions were used:
Economically Active
The combined numbers of the employed and the unemployed
Employed
People aged 15 or more who worked for a wage (in cash or in 
kind) or had income during at least one hour during the 
reference week
Or
Were temporarily absent from work with a formal job 
assignment
Or
Were helping on the family property or enterprise without 
wages
Self Employed
An employer who operates his or her own enterprise or 
engages independently in a profession or trade or owns a 
farm and employs other people
Or
An employer who works for a private or public employer
Or
Own account worker – a person who operates his or her own 
enterprise or engages independently in a profession or 
trade but does not employ other persons
Or
An unpaid family worker – a person who works without pay in 
an enterprise, a trade, or on a farm owned by another 
member of his or her household.
Unemployed
Was without work during the reference week and …
Was seeking work, i.e. has taken specific steps to find a 
job and …
Was prepared to accept a job in the reference week or in 
the following week
Changes in the Labour Force
The activity rate as the ratio of the labour force in the 
total population above the age of 15 years
The employment rate as the ratio of the number of workers 
employed to the total population above the age of 15 years
The unemployment rate as the ratio between the numbers of 
the unemployed to the total labour force.

As of 4/97:

The total activity rate was 53.7% (66.5% for men and 41.2% 
for women).
But this number hides major disparities in age groups. For 
instance: the activity rate of the age groups 35-39 was as 
high as 80.5% while for adolescents between the ages of 15-
19 it was only 22.7% and for people between the ages 55-59 
it was 36.5%.

The total employment rate was 34.4% (44.6% men and 24.4% 
women).
Again, there were great disparities between age groups. The 
employment rate for ages 40-44 was 62.6% - while for ages 
15-19 it was only 4.4% and for ages 20-24 it was a meager 
18.2%.

The total unemployment rate was 36% (33% for men and 40.8% 
- women).
More than 80.4% of the population aged 15-19 was 
unemployed, but only 20.2% of 40-44 and only 12% of 55-59.

The total population above the age of 15 at the time of the 
survey was 1,489,625 (men – 736,977 and women – 752,648).

The total labour force was 800,513 (men – 490,122, women – 
310,392).

The total number of unemployed was 288,213 (men – 161,717, 
women – 126,496). 

The total number of employed people was 512,301 (men – 
328,404, women – 183, 896).

Outside the labour force there were 689,112 people (men – 
246,856, women – 442,256).




To summarize in terms of percentages:

Ages 15-19 – 11% of the population – 4.6% of the labour 
force – 1.4% of the employed – 10.3% of the unemployed – 
18.3% of those outside the work force.
Ages 20-24 – 10.3% - 12.4% - 5.5% - 24.8% - 7.9%
Ages 25-29 – 9.7% - 13.8% - 10% - 20.7% - 5%
Ages 30-34 – 9.5% - 13.8% - 13.4% - 14.3% - 4.5%
Ages 35-39 – 9.8% - 14.7% - 16.8% - 11% - 4.1%
Ages 40-44 – 9.7% - 14.1% - 17.6% - 7.9% - 4.5%
Ages 45-49 – 9% - 12% - 15.4% - 6% - 5.5%
Ages 50-54 – 6.9% - 7.3% - 9.8% - 2.8% - 6.4%
Ages 55-59 – 6.2% - 4.2% - 5.8% - 1.4% - 8.5%
Ages 60-64 – 6.7% - 1.8% - 2.6% - 0.4% - 12.4%
Ages 65-69 – 5.1% - 0.5% - 0.8% - 0% - 10.4%
Ages 70-80 – 0.4% - 0.3% - 0.3% - 0.2% - 0.6%

In the population above the age of 15 years as a whole, 
there were c. 104,000 without education, 199,000 with 
incomplete education, 474,000 with primary education, 
151,000 with 3 years or less of secondary education, about 
369,000 with 4 years of secondary education and c. 55,000 
with a higher education. There were 81,100 with university 
degrees, 2,400 masters, 1,200 doctorates and 53,400 
“other”.

Yet, the numbers in the labour force were very different 
and reflected the absolute disadvantage of the uneducated, 
unskilled, semi skilled and even those with only secondary 
education.

Those without education were 20,000 in the labour force, 
12,000 among the employed, 8,000 among the unemployed (the 
employed and unemployed make up the labour force) - and a 
staggering 84,000 outside the workforce altogether.




The respective figures for those with incomplete education:
62,300, 44,200, 18,100, 136,300

For those with primary education (notice the marked 
improvement in employability!!!):
220,800, 118,000, 103,100, 253,100

And for those with 3 years of secondary education:
106,100, 64,800, 41,200, 45,100

Those with only one additional year of secondary education 
already look much better:
263,000, 176,000, 87,000, 106,300

And those with a higher education maintain European rates 
of unemployment:
41,000, 32,700, 8,300, 13,400

Those with university degrees:
67,200, 54,100, 13,100, 13,900

Masters:
1,630, 1,560, 70

Doctorates:
1,156, 1,086, 70, 71

76.3% of all men were employed (82.6% of women), 4.3% were 
employers (1.7%), 4.9% were self- employed (2.5%), 3.4% 
worked in family owned businesses (7.5%), 10.8% of all men 
worked in agriculture (and 5.6% of women).

Men made up 62.3% of the employed (women – 37.7%), 82.2% of 
all employers (17.8%), 78% of the self employed (22%), 45% 
of those employed in family businesses (55%), 77.5% of 
those employed in agriculture (22.5%).

The Situation in 8/99

Economic underdevelopment, agrarian over-employment, 
external shocks and an unrestructured economy led to an 
increase in both structural and cyclical employment. 
The supply side is still composed mainly of new entrants, 
women and unskilled or semi-skilled labour as well as 
educated workers.
The demand structure is incompatible with the supply. It is 
made of replacement jobs, new jobs (mainly in labour 
intensive industries), jobs generated by foreign entities.
The number of the unemployed broke yet another record in 
1999 and reached 344,472 people. Of these, almost half – 
154,000 – were unskilled. But the unemployed included 5 
doctors, 34 holders of master’s degrees and 11,400 with 
higher education. About 33,000 of these numbers were made 
“technologically redundant” – the euphemism for being laid 
off due to restructuring of enterprises or their closure.
By comparison, the number of employed people was only 
316,000.
In the first 8 months of 1999 alone there were 6,000 new 
unemployed per month versus a monthly average of 3,700 in 
1998. This increase is attributed to the inclusion of 
people who did not bother to register with the Employment 
Bureau in the past. 

The fiscal burden increased dramatically as contributions 
deteriorated to 25% of the Employment Bureau’s financing 
while the state budget contributed the remaining 75%, or 3 
billion MKD (equal to 100 million DM or c. 1.7% of GDP). 
The Employment Bureau also pays health insurance for about 
200,000 unemployed workers. 




The Labour Unions

The Association of Trade Unions in Macedonia (ATUM or CCM 
in the Macedonian acronym) is a voluntary organization, 
which encompasses 75% of all the employed workers in 
Macedonia as its members.

It is organized in the level of firms and institutions and 
has in excess of 2600 chapters. Additionally, it has about 
150 chapters in the municipalities and in the various 
industrial sectors (all 15 of them).

The typical Macedonian trade union is not supported by the 
government and is entirely financed by its membership fees 
(self sufficient).

The first collective agreement was signed in 1990 at which 
time the idea of Economic Social Council was floated as 
well as the idea of a tripartite 
(government+employees+employers) dispute settlement 
mechanism.

The Labour Relations act was passed in 1994 and instituted 
national collective agreement for the economic sector 
between CCM and the Board of Employers of the Economic 
Chamber of Commerce of Macedonia. Another general 
collective agreement covered all public services, public 
companies, state organs, local authorities and legal 
persons performing non-economic activities. This latter 
general collective agreement was signed between CCM and the 
Government of the Republic of Macedonia.
Yet a third set of more than 20 collective agreements 
between CCM and various organs of the Chamber of Commerce 
and ministries covered other sectors.

The Future of Unemployment in Macedonia

Public enterprise restructuring, privatization and reform 
are likely to increase unemployment benefits by 200-300 
million MKD annually (assuming only 2,000-3,000 workers are 
fired, a very conservative assumption as there are 18,000 
workers in the 12 major loss making state firms, whose 
closure was demanded by the IMF).




Unemployment is very dependent on productivity and GDP 
growth. The World Bank predicts that with a GDP growth of 
0%, the total expenditures on unemployment benefits could 
equal 2.3% of GDP. Even if GDP were to grow by 4% annually, 
their projections show unemployment benefits equaling 1.6% 
of GDP. 



III.	Bibliography

1.	“Has Job Stability Declined Yet? New Evidence for 
the 1990s”, NEBR working paper, December 1997.
2.	“Job Tenure and Labour Market Regulation: a 
Comparison of Britain and Italy using Micro 
Data”, CEPR discussion paper, October 1997.
3.	“A Disaggregate Analysis of the Evolution of Job 
Tenure in Britain 1975-93” 
4.	“Monetary Union and European Unemployment”, CEPR 
discussion paper No. 1485, October 1996.
5.	“Policy Complementarities: The Case for 
Fundamental Labour Market Reform” by David Coe 
and Dennis Snower. IMF Staff Papers Volume 44, 
No. 1, 1997.
6.	“French Unemployment: Why France and the USA are 
alike” by D. Cohen, A. Lefranc and G. Saint Paul. 
Economic Policy 25, October 1997.
7.	“Minimum Wages and Youth Unemployment in France 
and the USA” by I. Abowd, F. Kramarz, T. Lemieux 
and D. Margolis. NBER working paper 6111.
8.	“Making the most of the minimum: statutory 
minimum wages, employment and poverty”, 
Employment Outlook, June 1998
9.	“Symposium: The Natural Rate of Unemployment”, 
Journal of Economic Perspectives, Winter 1997
10.	“Rewarding Work” To be published by Harvard 
University Press.
11.	“The Role of Shocks and Institutions in the 
Rise of European Unemployment: The Aggregate 
Evidence” (http://www.web.mit.edu/blanchard)
12.	“Job security Provisions and Employment”, 
Quarterly Journal of Economics, August 1990.
13.	Review Essay by Paul Gregg and Alan Manning 
in Unemployment Policy, Eds. Dennis Snower and 
Guillermo de la Dehesa, Cambridge University 
Press, 1997.
14.	“The Dutch Model”, Frits Bolkestein, By 
Invitation, The Economist, May 22nd, 1999, pp. 97-
98
15.	“Beer, Sandwiches and Statistics”, Economic 
Focus, The economist, July 12th, 1997, p.78
16.	“Agricultural Productivity, Comparative 
advantage and Economic Growth”, Journal of 
Economic Theory 58, 1992
17.	“Deindustrialization”, World Economic 
Outlook, April 1997
18.	“Deindustrialization: Causes and 
Implications” by Robert Rowthorn and Ramana 
Ramaswamy. IMF working paper, April 1997.
19.	“The Grabbing Hand: Government Pathologies 
and their Cures” by Andrei Shleifer and Robert 
Vishny. Harvard University Press. 
20.	“The Chemistry of Growth”, Economic Focus, 
The Economist, March 6th, 1999, p.80.
21.	“The Politics of Unemployment – Europe hits 
a brick wall”, The Economist, April 5th, 1997, 
p.19.
22.	“Working man’s burden”, Economic Focus, The 
economist, February 6th, 1999, p.88.
23.	“An Assessment of Economic Reforms and 
Country Competitiveness in Transition Economies: 
Macedonia”. Compiled by Lidija Rangelovska for 
the Harvard Institute of International 
Development (HIID), July 1999.
24.	“Statistical Yearbook of the Republic of 
Macedonia, 1998”, Statistical Office of the 
Republic of Macedonia, XXXIII, Skopje, November 
1998, pp. 158-206
25.	“National Development Strategy for Macedonia 
– Development and Modernization”, Macedonian 
Academy of Sciences and Arts, Skopje, 1997, pp. 
127-147
26.	“The Republic of Macedonia”, SIBIS, Skopje, 
1996, pp. 59-60
27.	“The Encyclopedia Britannica”, 1999 Edition
28.	“Aide Memoire Public Expenditure 
Institutional Review Mission”, July 19-30, 1999, 
Draft 7/30/99
29.	“IMF Fiscal Affairs Department – FYROM: Some 
Options for Restructuring Government 
Expenditures” by Sheetal K. Chand, Calvin 
McDonald, Eric Haindl. November 1997.
30.	“Program of the Republic of Macedonia for 
stimulating investments with a special emphasis 
on attracting foreign direct investments”, The 
Government of the Republic of Macedonia, Skopje, 
March 1999
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Support and Technical Assistance Project – Labour 
Redeployment Program – Semiannual Report – June 
1999” by The Privatization Agency of the Republic 
of Macedonia – Project Coordination Unit – 
Coordinator: Vladimir Sarac – Skopje, July 31, 
1999.
32.	ILO Convention no. 160 – “Convention on the 
Statistics of Labour Force” (ILO 1992, p.1325).
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Flexibility: Panel Evidence Based on Survey 
Data”, by R. Di Tella and R. MacCullouch, Harvard 
Business School and ZEI, University of Bonn 
respectively, April 28th, 1999.



The Labour Divide 
I. Employment and Unemployment
By: Dr. Sam Vaknin
Also published by United Press International (UPI) 

Communism abolished official unemployment. It had no place 
in the dictatorship of the proletariat, where all means of 
production were commonly owned. Underemployment was rife, 
though. Many workers did little else besides punching cards 
on their way in and out. 
For a long time, it seemed as though Japan succeeded where 
communism failed. Its unemployment rate was eerily low. It 
has since climbed to exceed the United States' at 5.6%. As 
was the case in Central and Eastern Europe, the glowing 
figures hid a disheartening reality of underemployment, 
inefficiency, and incestuous relationships between 
manufacturers, suppliers, the government, and financial 
institutions.
The landscape of labour has rarely undergone more all-
pervasive and thorough changes than in the last decade. 
With the Cold War over, the world is in the throes of an 
unprecedented economic transition. The confluence of new, 
disruptive technologies, the collapse of non-capitalistic 
modes of production, the evaporation of non-market 
economies, mass migration (between 7.5% - in France - and 
15% - in Switzerland - of European populations), and a 
debilitating brain drain - altered the patterns of 
employment and unemployment irreversibly and globally.
In this series of articles, I study this tectonic shift: 
employment and unemployment, brain drain and migration, 
entrepreneurship and workaholism, the role of trade unions, 
and the future of work and retirement.
I. The True Picture
According to the ILO ("World Employment Report - 2001"), 
more than 1 billion people - one third of the global 
workforce - are either unemployed or underemployed. Even 
hitherto "stable" countries have seen their situation 
worsen as they failed to fully adjust to a world of labour 
mobility, competitiveness, and globalization. 
Unemployment in Poland may well be over 18% - in Argentina, 
perhaps 25%. In many countries, unemployment is so 
entrenched that no amount of aid and development seem to 
affect it. This is the case in countries as diverse as 
Macedonia (35% unemployment) and Zimbabwe (a whopping 60%). 
The much heralded improvements in the OECD countries were 
both marginal (long term unemployment declined from 35% of 
the total to 31%) and reversible (unemployment is 
vigorously regaining lost ground in Germany and France, for 
instance). 
Official global unemployment increased by 20 million people 
(to 160 million) between the nadir of the Asian crisis in 
1997 and 2001. The situation has much deteriorated since. 
The ILO estimates that the world economy has to run (i.e., 
continue to expand as it has done in the roaring 1990's) - 
in order to stay put (i.e., absorb 500 million workers 
likely to be added to the global labour force until 2010). 
How can this be achieved with China unwinding its state 
sector (which employs 13% of its workforce) - is not clear. 
Add to this stubbornly high birth rates (esp. in Africa) 
and a steady decline in government hiring al over the world 
- and the picture may be grimmer than advertised.
But the rate of unemployment is not a direct and exclusive 
result of growth or the lack thereof. It is influenced by 
government policies, market forces (including external 
shocks), the business cycle, discrimination, and investment 
- including by the private sector - in human capital.
The problem with devising effective ways of coping with 
unemployment is that no one knows the true picture. Taking 
into account internal, rural-to-urban, migration patterns 
and the growth of the private sector (it now employs 5% of 
the labour force) - China may have a real unemployment rate 
of 9.5% (compared to the official figure of 3.1%). Egypt's 
official rate is 8% -but it masks vast over-employment in 
the public sector. Lebanon's is 9% - due to a one-time 
reconstruction bonanza, financed by the billionaire-turned-
politician, Hariri. Algeria's unemployed easily amount to 
half the work force - yet, the published rate is 29%. In 
numerous countries - from Brazil to Sri Lanka - many people 
are mainly employed in casual work.
The average unemployment rate in Central and Eastern Europe 
is 14% - but it is double that (more than 30%) among the 
young (compared to 15% for West European youths). The 
average is misleading, though. In Georgia the rate is 70% - 
in the Czech Republic 16%. 



Even in the OECD, the tidal wave of part-time workers, 
short term contracts, outsourcing, sub-contracting, and 
self-employment - renders most figures rough 
approximations. Part time work is now 20% of the OECD 
workforce (German attempts to reverse the trend 
notwithstanding). Temporary work and self-employment 
constitute another 12% each. No one knows for sure how many 
illegal economic migrants are there - but there are tens of 
millions of legal ones. 
II. The Facts
IIa. Labour Mobility
"Mobility", "globalization", "flextime" - media imagery 
leads us to believe that we move around more often, and 
change (less secure) jobs more frequently. It is not so. By 
many measures, the world is less globalized today than it 
was a century ago.  Contrary to popular perceptions, job 
tenure (in the first 8 years of employment) has not 
declined, nor did labour mobility increase (according to 
findings published by the NBER and CEPR). Firms' hiring and 
firing practices are more flexible but this is because 
"sarariman" jobs are out of fashion and many workers (80% 
of them, according to the Employment Policy Foundation) 
prefer casual work with temporary contracts.
Workers keep moving, as they always have, among firms and 
between sectors. But they are still reluctant to relocate, 
let alone emigrate. The subjective perception of job 
insecurity is high, even after the most prosperous decade 
in recent history. Witness the sparse movement of labour 
among members of the EU, despite the existence, on paper, 
of a single labour market. Still, rising systemic 
unemployment everywhere serves to increase both the 
efficiency and productivity of workers and to moderate 
their wage claims.
IIb. Collective Bargaining
Studies linked collective bargaining to an increased wage 
level, decreased hiring and more rigid labour markets. But 
unionized labour has greatly contracted in almost all OECD 
countries. Why has unemployment remained so persistently 
high? 
In France and the Netherlands collective agreements were 
applied to non-unionized labour (close to four fifth of the 
actually employed in the latter). Employment increases only 
where both union membership and coverage by collective 
agreements are down (USA, UK, New Zealand, Australia). 
There are different models of wage bargaining. In the USA 
and Canada agreements are sometimes signed at the firm or 
even individual plant level. Throughout Scandinavia (though 
this may be changing in Norway and Denmark now that centre-
right parties have won the elections), a single national 
agreement prevails. There is no clear trend, though. 
Britain, New Zealand and Sweden decentralized their 
collective bargaining processes while Norway and Portugal 
are still centralized. 
Both types of bargaining - centralized and decentralized - 
tend to moderate wage demands. Centralized bargaining 
forces union leaders to consider the welfare of the entire 
workforce. Either of the pure models seems preferable to a 
hybrid system. The worst results are obtained with national 
bargaining for specific industries. Hybrid-bargaining 
Europe saw its unemployment soar from 3 to 11% in the last 
25 years. Pure-bargaining USA maintained a low unemployment 
rate of 5-6% during the same quarter century. 
IIc. Unemployment Benefits
Blanchard and Wolfers studied 8 market rigidities in 20 
countries (including the EU, USA, Canada, and Japan) 
between the years 1960-96. The unemployment rate in an 
imaginary composite of all the studied countries should 
have risen by 7.2% in this period. But unemployment 
increased by twice as much in countries with strict 
employment protection laws compared to countries with laxer 
labour legislation.
Unemployment in the country with the most generous 
unemployment benefits grew five times more than in the most 
parsimonious one. It grew our times faster in countries 
with centralized wage bargaining than in countries with 
utterly decentralized bargaining. Labour market rigidities 
all amplify the effects of asymmetrical shocks - which 
bodes ill for the eurozone.
Other studies (e.g., the 1994 OECD one year study, the more 
substantial DiTella-MacCullouch study) seem to support 
these findings. The transition from a rigid to a flexible 
labour market does not yield immediate results because it 
increases labour force participation. But the unemployment 
rate is favorably affected later. 
IId. Minimum Wages
In the USA, the minimum wage is 35% of the median wage (in 
France it is 60%, in Britain - 45%, and in the Netherlands 
it is declining). When wages are downward-flexible – more 
lowly skilled jobs are created. A 1% rise in the minimum 
wage reduces the probability of finding such a job by 2-
2.5% in both America and France, according to the NBER 
(Lemieux and Margolis).
The proponents of minimum wages say they reduce poverty and 
increase the equality of wealth distribution. Their 
opponents (such as Peter Tulip of the Federal Reserve) 
blame them for job destruction, mainly by raising the 
NAIRU. The OECD's position is that wage regulation cannot 
remedy poverty. As "The Economist" succinctly puts it, "few 
low paid workers live in low-income households and few low-
income households include low paid workers. (Thus), the 
benefits of the minimum wage, such as they are, largely 
bypass the poor."
Again, it is important to realize that unemployment is not 
universal - it is concentrated among the young, the old, 
the under-educated, the unskilled, and the geographically 
disadvantaged. One in eight of all workers under the age of 
25 in the USA are unemployed, more than twice the national 
average (the figure in France is one in four). A 10% rise 
in the minimum wage - regardless of its level - reduces 
teenage employment by 2-4%, calculates the OECD.
Many countries (USA, UK, France) introduced "training 
wages" – actually, minimum wage exemptions for the young. 
But even this sub-minimum wages still represent a high 
percentage of mean youth earnings (53% in the USA and 72% 
in France) and thus have an inhibiting effect on youth 
employment.
Minimum wages do reduce inequality by altering the income 
distribution and by equalizing wages across ages and 
genders - but they have no effect on inequality and poverty 
reduction, insists the OECD. "The Economist" quotes these 
figures (in 1998): 
"In American households with less than half the median 
household income, only 33% of adults have a low-paid job. 
(compared to 13% in the Netherlands and 5% in the UK). In 
most poor households no one is employed in a regular job. 
Many low earners, on the other hand, have well-paid 
partners, or affluent parents ...  Only 33% of those 
Americans who earn less than two-thirds of the median wage 
live in families whose income is less than half the 
national median. (In the UK the figure is 10% and in 
Ireland – 3%). Over a 5-year period, only 25% of low paid 
Americans are in a poor family at some point;  in Britain 
10% are."
Thus, minimum wages seem to hurt poor families with 
teenagers (by making teenage employment unattractive) while 
benefiting mainly the middle class.



Still, the absolute level of the minimum wage seems to be 
far more important that its level relative to the average 
or median wage. Hungary's unemployment went down, from 9% 
to 6%, while its minimum wage went up (in real terms) by 
72% in 1998-2001. During the same four year period, its 
economy grew by an enviable 5% a year, real wages 
skyrocketed (by 17%), and its inflation dropped to 7% (from 
16%).
IIe. Structural Unemployment
Most unemployment in Europe is structural (as high as 8.9% 
in Germany, according to a 1999 IMF study). It is the 
ossified result of decades of centralized wage bargaining, 
strict job protection laws, and over-generous employment 
benefits. The IMF puts structural unemployment in Europe at 
9%. This is compared to the USA's 5% and the UK's 6% (down 
from 9%). The remedies, though well known, are politically 
unpalatable: flexible wages, mobile labour, the right 
fiscal policy, labour market deregulation, and limiting 
jobless benefits. 
Some hesitant steps have been taken by the governments of 
Germany and France (cut jobless benefits and turned a blind 
eye to temporary and part-time work), by Italy (decoupled 
benefits from inflation), and by Belgium, Spain and France 
(reduced the minimum wage payable to young people). 
But piecemeal reform is worse than no reform at all. In an 
IMF Staff Paper, Coe and Snower describe the Spanish 
attempt to introduce fixed term labour contracts. It 
established two de facto classes of workers - the temporary 
vs. the permanently employed - and, thus, reduced labour 
market flexibility by granting increased bargaining power 
to the latter. France introduced a truncated, 35-hours, 
working week. Other countries imposed a freeze on hiring 
with the aim of workforce attrition through retirement. 
Yet, these "remedies" also led to an increase in the 
bargaining power of the remaining workers and to 
commensurate increases in real wages.
IIf. Unemployment and Inflation
Another common misperception is that there is some trade 
off between unemployment and inflation. Both Friedman and 
Phelps attacked this simplistic notion. Unemployment seems 
to have a "natural" (equilibrium) rate, which is determined 
by the structure and operation of the labour market and is 
consistent with stable inflation (NAIRU – Non Accelerating 
Inflation Rate of Unemployment).
NAIRU is not cast in stone. Employment subsidies, for 
instance, make low skilled workers employable and lower 
NAIRU. So do unilateral transfers which raise incomes. 
According to Phelps, big drops in unemployment need not 
greatly increase permanent inflation. Stiglitz calculated 
that America's NAIRU may have dropped by 1.5% due to 
increased competition in the markets for jobs and goods. 
These findings are supported by other prominent economists. 
Stiglitz concluded that NAIRU, in itself, is meaningless. 
It is the gap between the estimated NAIRU and the actual 
rate of unemployment that is a good predictor of inflation.
IIg. The Rhineland Model, the Poldermodel, and Other 
European Ideas
The Anglo-Saxon variant of capitalism is intended to 
maximize value for shareholders (often at the expense of 
all other stakeholders).
The Rhineland model likes to think of itself as "capitalism 
with a human face". It calls for an economy of consensus 
among stakeholders (shareholders, management, workers, 
government, banks, other creditors, suppliers, etc.)
Netherlands, too, has an advisory Social and Economic 
Council. Another institution, the Labour Foundation is a 
social partnership between employees and employers. Both 
are relics of a corporatist past.
But the Netherlands saw its unemployment rate decline from 
17% to less than 2% while ignoring both models and 
inventing the "Poldermodel", a Third Way. Wim Duisenberg, 
the Dutch Banker (currently Governor of the European 
Central Bank), quoted in an extensive analysis of the 
Poldermodel prepared for "The Economist" by Frits Bolkstein 
(a former Dutch minister for foreign trade), attributed 
this success to four elements:
1.	Improving state finances 
2.	Pruning social security and other benefits and 
transfers 
3.	Flexible labour markets 
4.	A Stable exchange rate 
According to Thomas Mayer and Laurent Grillet-Aubert ("The 
New Dutch Model"), the "Dutch Miracle" traces its 
beginnings to 1982 and the Wassenaar Agreement in which 
employers' organizations and trade unions settled on wage 
moderation and job creation, mainly through 
decentralization of wage bargaining. The government 
contributed tax cuts to the deal (these served to 
compensate for forgone wage increases). These cuts 
generated a fiscal stimulus and prevented a contraction in 
demand as a result of wage moderation. Additionally, both 
social security payments and the minimum wage were 
restricted. Wage increases were no longer matched by 
corresponding increases in minimum social benefits. Working 
hours, hiring, firing and collective bargaining were all 
incorporated in a deregulated labour market. 
Small and medium size businesses costly regulation was 
relaxed. Generous social security and unemployment benefits 
(a disincentive to find work) were scaled back. Sickness 
benefits, vacation periods, maternal leave and unemployment 
benefits were substantially adjusted.
The Netherlands did not shy from initiating public works 
projects, though on a much smaller scale than France, for 
instance. The latter financed these projects by raising 
taxes and by increasing its budget deficit. The Dutch 
preferred to rely on the free market.
Long term (more than 12 months) unemployment in Europe 
constitutes 30% of the total. About half the entire 
workforce under the age of 24 is unemployed in Spain - and 
about one quarter in France and in Italy. Germany, Austria 
and Denmark escaped this fate only by instituting 
compulsory apprenticeship. But the young unemployed form 
the tough and immutable kernel of long-term unemployment. 
This is because a tug of war, a basic conflict of interest, 
exists between the "haves" and "have-nots". The employed 
wish to defend their monopoly and form "labour cartels". 
This is especially true in dirigiste Europe. 
While, in the USA, according to McKinsey, 85% of all 
service jobs created between 1990-5 paid more than the 
average salary – this was not the case in Europe. Add to 
this European labour immobility - and a stable geographical 
distribution of unemployment emerges.
The Dutch model sought to counter all these rigidities. In 
a report about "The Politics of Unemployment" dated April 
1997, "The Economist" admiringly enumerated these steps:
*	The Dutch reduced social security contributions from 
20% (1989) to 7.9% and they halved the income tax rate 
to 7% (1994). 
*	They allowed part time workers to be paid less than 
full timers, doing the same job. 
*	They abandoned sectoral central bargaining in favor of 
decentralized national bargaining. 
*	They cut sickness benefits, unemployment insurance 
(benefits) and disability insurance payments (by 10% 
in 1991 alone – from 80% to 70%). 
*	They made it harder to qualify for unemployment (from 
1995 no benefits were paid to those who chose to 
remain unemployed). 
*	The burden of supporting the sick was shifted to the 
employer / firm. In 1996, the employer was responsible 
to pay for the first year of sickness benefits. 
Even the Dutch model is not an unmitigated success, though. 
More than 13% of the population are on disability benefits. 
Only 74% of the economically active population is in the 
workforce - one third of them in part time jobs.
But compare the Dutch experience to France's, for instance.
The Loi Robien exempted companies from some social security 
contributions for 7 years, if they agree to put workers on 
part time work instead of laying them off. Firms promptly 
abused the law and restructured themselves at the 
government's expense.
The next initiative was to reduce the working week to 35 
hours. This was based on the "Lump of Labour Fallacy" – the 
idea that there is a fixed quantity of work and that 
reducing the working week from 39 to 35 hours will create 
more jobs. 
In Spain, hiring workers is unattractive because firing 
them is cost-prohibitive. The government – faced with more 
than 22% unemployment in the mid-90's – let more than 25% 
of all workers go on part time contracts with less job 
protection, by 2001. 
Still, no one knows to authoritatively answer the following 
substantial questions, despite the emergence of almost 
universally applied UN-sponsored Standard National Job 
Classifications:
How many are employed and not reported or registered? How 
many are registered as unemployed but really have a job or 
are self-employed? How many are part time workers – as 
opposed to full time workers? How many are officially 
employed – but de facto unemployed or underemployed? How 
many are on "indefinite" vacations, on leave without pay, 
on reduced pay, etc.?



Many countries have a vested interest to obscure the real 
landscape of their destitution - either in order to prevent 
social unrest, or in order to extract disproportionate 
international aid. In a few countries, limited amnesties 
were offered by the state for employers' violations of 
worker registration. Firms were given a few, penalty-free, 
weeks to register all their workers. Afterwards, labour 
inspectors were supposed to embark on sampling raids and 
penalize the non-compliers, if need be by closing down the 
offending business. The results were dismal. 
In most countries, the unemployed must register with the 
Employment Bureau once a month, whether they receive their 
benefits, or not. Non-compliance automatically triggers the 
loss of benefits. In other countries, household surveys 
were carried out - in addition to claimant counts and 
labour force surveys, which deal with the structure of the 
workforce, its geographical distribution, the pay 
structure, and employment time probabilities.
Yet, none of these measures proved successful as long as 
government policies - the core problem - remained the same. 
Faced with this trenchant and socially corroding scourge - 
governments have lately been experimenting with a variety 
of options.
III. The Solutions
IIIa. Tweaking Unemployment Benefits
Unemployment benefits provide a strong disincentive to work 
and, if too generous, may become self-perpetuating. 
Ideally, unemployment benefits should be means tested and 
limited in time, should decrease gradually and should be 
withheld from school dropouts, those who never held a job, 
and, arguably, as is the case in some countries, women 
after childbearing. In the USA, unemployment benefits are 
not available to farm workers, domestic servants, the 
briefly employed, government workers and the self- 
employed.
Copious research demonstrates that, to be effective, 
unemployment benefits should not exceed short-term sickness 
benefits (as they do in Canada, Denmark, and the 
Netherlands). Optimally, they should be lower (as they are 
in Greece, Germany and Hungary). Where sickness benefits 
are earnings-related, unemployment benefits should be flat 
(as is the case in Bulgaria and Italy). In Australia and 
New Zealand, both sickness benefits and unemployment 
benefits are means tested. Unemployment benefits should not 
be higher than 40% of one's net average monthly wage (the 
"replacement rate").
Most unemployment benefits are limited in time. In 
Bulgaria, to 13 weeks, in Israel, Hungary, Italy and the 
Netherlands to 6 months and in France, Germany, Luxemburg 
and the United Kingdom – to 12 months. Only Belgium offered 
time-unlimited unemployment benefits. In most countries, 
once unemployment benefits end - social welfare payments 
commence, though they are much lower (to encourage people 
to find work). 
In many countries in transition (e.g., in Macedonia), the 
unemployed are eligible to receive health and pension 
benefits upon registration. This - besides being an 
enormous drain of state finances - encourages people to 
register as unemployed even if they are not and distorts 
the true picture. 
Some countries, mainly in Central Europe, attempt to 
provide lump sum block grants to municipalities and to 
allow them to determine eligibility, to run their own 
employment-enhancement programs, and to establish job 
training and child care centers. Workers made redundant can 
choose to either receive a lump sum or be eligible for 
unemployment benefits. 
A third approach involves the formation of private 
unemployment, disability, and life, or health insurance and 
savings plans to supplement or even replace the benefits 
offered by the relevant state agencies. 
An intriguing solution is the municipal "voucher 
communities" of unemployed workers, who trade goods and 
services among themselves (in the UK, in Australia, and in 
Canada). They use a form of "internal money" – a voucher. 
Thus, an unemployed electrician exchanges his services with 
an unemployed teacher who, in return tutors the 
electrician's off-spring. The unemployed are allowed to use 
voucher money to pay for certain public goods and services 
(such as health and education). Voucher money cannot be 
redeemed or converted to real money – so it has no 
inflationary or fiscal effects, though it does increase the 
purchasing power of the unemployed. 
IIIb. Enhancing Employability
In most such schemes, the state participates in the wage 
costs of newly hired formerly unemployed workers – more 
with every year the person remains employed. Employers 
usually undertake to continue to employ the worker after 
the state subsidy is over. Another ploy is linking the size 
of investment incentives (including tax holidays) to the 
potential increase in employment deriving from an 
investment project. Using these methods, Israel succeeded 
to absorb more than 400,000 working age immigrants from 
Russia in the space of 5 years (1989-1994) - while reducing 
its unemployment rate.



IIIc. Encouraging Labour Mobility
Workers are encouraged to respond promptly and positively 
to employment signals, even if it means relocating. In many 
countries, a worker is obliged to accept any job on offer 
in a radius of 100 km from the worker's place of residence 
on pain of losing his or her unemployment benefits. Many 
governments (e.g., Israel, Yugoslavia, Russia, Canada, 
Australia) offer the relocating worker financial and 
logistical assistance as well as monetary and non-monetary 
incentives. 
The EU is considering to introduce standard fixed term 
labour contracts. They would reduce the insupportable costs 
and simplify the red tape now involved in hiring and 
firing. The only country to buck the trend is Germany. It 
is looking to equate the rights of part time workers and 
full time ones. Similar ideas are debated in Britain. In 
France and most countries in Central and Eastern Europe, to 
dismiss a worker, the employer has to show that it has 
restricted hiring, applied workforce attrition, and reduced 
overall overtime. The EU's "social chapters" - now on of 
every member's law books - provides sacked employees with 
recourse to domestic and European courts against their 
employers. In other parts of the world, the two parties are 
subject to conciliation, mediation, or arbitration.
IIId. Reforming the Minimum Wage
Minimum wage hinders the formation of new workplaces - and 
yet almost all countries have it. Both the USA and the UK 
have just increased it. Many are considering a scaled 
minimum wage, age-related, means tested, and skills-
dependent.
IIIe. Administrative Measures: Early Retirement
A favorite of post-communist countries in transition, early 
retirement was liberally applied in order to get rid of 
"technologically-redundant" workers and thus trim under-
employment.
Romania, for instance, offered its workers a handsome up-
front payment combined with unemployment benefits. A 
special Early Retirement Fund was created by setting aside 
receipts from the privatization of state assets and from 
dividends received by the state from its various 
shareholdings.



IIIf. Administrative Measures: Reduction of Working Hours
France has recently implemented the second phase of its 
transition to a 35 hours working week, making it obligatory 
for medium and small businesses. It is considered by many 
economist to be a wasteful measure, based on the "lump of 
labour" fallacy.
IIIg. Administrative Measures: Public Works
The Civilian Conservation Corps (CCC) was established in 
the USA in 1932. It offered work for young and unmarried 
men. They planted trees, erected flood barriers, put out 
forest fires, and constructed forest roads and trails. They 
lived in semi-military work camps, were provided with food 
rations and a modest monthly cash allowance, medical care, 
and other necessities.
At its apex, the CCC employed 500,000 people – and 3 
million people throughout its existence. It was part of a 
major "public works" drive known as "The New Deal". This 
Keynesian tradition continues in many countries - from 
deflationary Japan to racially imbalanced South Africa - to 
this very day. Such workers are usually paid a salary equal 
to their unemployment benefits (Workfare). 
The Encyclopedia Britannica has this to say about public 
works:
"The weakness in the proposal to use disguised unemployment 
for the construction of social overhead capital projects 
arises from inadequate consideration of the problem of 
providing necessary subsistence funds to maintain the 
workers during the long waiting period before the projects 
yield consumable output. This can be managed somehow for 
small-scale local community projects when workers are 
maintained in situ by their relatives – but not when 
workers move away. The only way to raise subsistence funds 
is to encourage voluntary savings and expansion of 
marketable surplus of food purchased with these savings."
Public works financed by grants or soft loans do serve as 
an interim "unemployment sink" – a countercyclical buffer 
against wild upswings in unemployment - but, for all we 
know, they may simply be displacing existing employment at 
great cost to the public purse. 



IIIh. Administrative Measures: Public Education and 
Dissemination of Information 
Employment Bureaus throughout the world - spurred on by 
stiff competition from the private sector - have 
transformed themselves from mere registries to active (and 
computerized) labour exchanges. Many also strive to educate 
workers, retrain them, and enhance their employability 
through the acquisition of new skills. The unemployed are 
taught how to prepare a professional bio, a business plan, 
a marketing plan, feasibility studies, credit applications 
and interview skills.
Employment Bureaus now organize job clubs, labour exchanges 
and employment fairs.
IIIi. National Employment Contract
Many countries - especially in Latin America and in Central 
and Eastern Europe - have signed "National Employment 
Contracts" between government, trade unions, employers 
(represented by the Chamber of Commerce), and Central Bank. 
In this neo-corporatist approach, employers usually 
guarantee the formation of new work places against a freeze 
on employee compensation, the exclusion of part time labour 
from collective bargaining, and added flexibility on 
minimum wages, job security, hiring and firing procedures, 
social and unemployment benefits, indexation of wages and 
benefits, the right to strike, and wage increases 
(increasingly linked to productivity gains). 
Trade unions, in return, are granted effective control of 
the shop floor - issues like unemployment insurance, 
employment protection, early retirement, working hours, old 
age pensions, health insurance, housing, taxation, public 
sector employment, vocational training, and regional aid 
and subsidies to declining and infant industries.
In Sweden and Germany there is co-determination. Workers 
are represented even in non-wage related matters (such as 
the work organization).



Wages and unemployment benefits are perceived as 
complementary economic stabilizers. Many countries 
instituted an "Incomes Policy" intended to ensure that 
employers, pressurized by unions, do not raise wages and 
prices. In Sweden, for instance, both labour and management 
organizations are responsible to maintain price stability. 
The government can intervene in the negotiations and even 
threaten a wage freeze, or wage AND price controls. In 
Holland the courts can set wages. 
Another possibility is a Guaranteed Wage Plan – Employers 
assure minimum annual employment or minimum annual wages or 
both to tenured employees. In return, firms and trade 
unions forego seniority (LIFO, last in first out, firing 
the newly hired first) and the employer is given a free 
hand in hiring and firing employees, regardless of tenure.
IIIj. Labour Disputes Settlement
Most modern collective agreements require compulsory 
dispute settlement through mediation and arbitration with 
clear grievance procedures. Possibilities include 
conciliation (a third party brings management and labour 
together to try and solve the problems by themselves), 
mediation (a third party makes nonbinding suggestions to 
the parties), arbitration (a third party makes final, 
binding decisions), or Peer Review Panels – where 
management and labour rule together on grievances.
IIIk. Non-conventional Modes of Work
Work is no longer the straightforward affair it used to be.
In Denmark, a worker can take a special leave. He receives 
80% of the maximum unemployment benefits as well as 
uninterrupted continuity in his social security rights. But 
he has to use the time for job training, a sabbatical, 
further education, a parental leave, to take old people 
(old parents or other relatives), or the terminally ill. 
This is also the case in Belgium (though only for up to 2 
months). These activities are thought of as substitutes for 
social outlays.
In Britain, part time and full time workers are entitled to 
the same benefits if wrongfully dismissed and in Holland, 
the pension funds grant pensions to part time workers. In 
many countries, night, shift and weekend workers are 
granted special treatment by law and by collective contract 
(for instance, exemption from social benefits 
contributions).
Most OECD countries now encourage (or tolerate) part-time, 
flextime, from home, seasonal, casual, and job sharing 
work. Two people sharing the same job as well as shift 
workers are allowed to choose to be treated, for tax 
purposes and for the purposes of unemployment benefits, 
either as one person or as two persons. In Bulgaria, 
Macedonia, and a host of other post-communist countries, a 
national part time employment program (called in Macedonia 
the "Mladinska Zadruga") encourages employers to hire the 
unemployed on a short term, part time basis 
IIIl. Full Employment Budgets
The national accounts of many countries now produce a full 
employment budget. It adjusts the budget deficit or surplus 
in relation to effects of deviations from full or normal 
unemployment. Thus, a simple balanced budget could be 
actually contractionary. A simple deficit may, actually, be 
a surplus on a full employment basis and government 
policies can be contractionary despite positive borrowing.
IIIm. Apprenticeship, Training, Retraining and Re-
Qualification
In France, Germany, the UK, the USA, and many other 
countries, sub-minimum wages are paid to participants in 
apprenticeship and training programs. Most of the 
unemployed can be retrained, regardless of age and level of 
education. This surprising result has emerged from many 
studies.
The massive retraining and re-qualification programs 
required by the technological upheavals of the last few 
decades are often undertaken in collaboration with the 
private sector. The government trains, re-trains, or re-
qualifies the unemployed – and firms in the private sector 
undertake to employ them for a minimal period of time 
afterwards. It is a partnership, with the government acting 
as educational sub-contractor for the business sector (with 
emphasis on the needs of small to medium enterprises) and a 
catalyst of skill acquisition. Such programs include 
vocational training, entrepreneurship skills, management 
skills, and even basic literacy and numeracy. Students are 
often employed as instructors in return for college credits 
and scholarships.



IIIn. Entrepreneurship and Small Businesses
Small businesses are the engine of growth and job creation 
in all modern economies. Even the governments of rich 
countries encourage innovative credit schemes (such as 
micro-credits) and facilities (such as business 
incubators), tax credits, and preference to small 
businesses in government procurement.





The Labour Divide 
II. Migration and Brain Drain
By: Dr. Sam Vaknin 
Also published by United Press International (UPI)


Human trafficking and people smuggling are multi-billion 
dollar industries. At least 50% of the 150 million 
immigrants the world over are illegal aliens. There are 80 
million migrant workers found in virtually every country. 
They flee war, urban terrorism, crippling poverty, 
corruption, authoritarianism, nepotism, cronyism, and 
unemployment. Their main destinations are the EU and the 
USA - but many end up in lesser countries in Asia or 
Africa. 
The International Labour Organization (ILO) published the 
following figures in 1997:
Africa had 20 Million migrant workers, North America - 17 
million, Central and South America - 12 million, Asia - 7 
million, the Middle East -  9 million, and Europe - 30 
million.
 
Immigrants make up 15% of staid Switzerland's population, 
9% of Germany's and Austria's, 7.5% of France's (though 
less than 4% of multi-cultural Blairite Britain). There are 
more than 15 million people born in Latin America living in 
the States. According to the American Census Bureau, 
foreign workers comprise 13% of the workforce (up from 9% 
in 1990). A million have left Russia for Israel. In this 
past century, the world has experienced its most sweeping 
wave of both voluntary and forced immigration - and it does 
not seem to have abated.
According to the United Nations Population Division, the EU 
would need to import 1.6 million migrant workers annually 
to maintain its current level of working age population. 
But it would need almost 9 times as many to preserve a 
stable workers to pensioners ratio. 
The EU may cope with this shortage by simply increasing 
labour force participation (74% in labour-short 
Netherlands, for instance). Or it may coerce its unemployed 
(and women) into low-paid and 3-d (dirty, dangerous, and 
difficult) jobs. Or it may prolong working life by 
postponing retirement. 
These are not politically palatable decisions. Yet, a wave 
of xenophobia that hurtled lately across a startled Europe 
- from Austria to Denmark - won't allow the EU to adopt the 
only other solution: mass (though controlled and skill-
selective) migration. 
As a result, Europe has recently tightened its admission 
(and asylum) policies even more than it has in the 1970's. 
It bolted and shut its gates to primary (economic) 
migration. Only family reunifications are permitted. Well 
over 80% of all immigrants to Britain are women joining 
their husbands, or children joining their father. Migrant 
workers are often discriminated against and abused and many 
are expelled intermittently.
Still, economic migrants - lured by European riches - keep 
pouring in illegally (about half a million every year -to 
believe The Centre for Migration Policy Development in 
Vienna). Europe is the target of twice as many illegal 
migrants as the USA. Many of them (known as "labour 
tourists") shuttle across borders seasonally, or commute 
between home and work - sometimes daily. Hence the EU's 
apprehension at allowing free movement of labour from the 
candidate countries and the "transition periods" (really 
moratoria) it wishes to impose on them following their long 
postponed accession.
According to the American Census Bureau's March 2002 
"Current Population Survey", 20% of all US residents are of 
"foreign stock" (one quarter of them Mexican). They earn 
less than native-born Americans and are less likely to have 
health insurance. They are (on average) less educated (only 
67% of immigrants age 25 and older completed high school 
compared to 87% of native-born Americans). Their median 
income, at $36,000 is 10% lower and only 49% of them own a 
home (compared to 67% of households headed by native-born 
Americans). The averages mask huge disparities between 
Asians and Hispanics, though. Still, these ostensibly 
dismal figures constitute a vast improvement over 
comparable data in the country of origin.
But these are the distant echoes of past patterns of 
migration. Traditional immigration is becoming gradually 
less attractive. Immigrants who came to Canada between 
1985-1998 earn only 66% of the wages of their predecessors. 
Labour force participation of immigrants fell to 68% (1996) 
from 86% (1981).



While most immigrants until the 1980's were poor, 
uneducated, and unskilled - the current lot is middle-
class, reasonably affluent, well educated, and highly 
skilled. This phenomenon - the exodus of elites from all 
the developing and less developed countries - is called 
"brain drain", or "brain hemorrhage" by its detractors (and 
"brain exchange" or "brain mobility" by its proponents). 
These metaphors conjure up images of the inevitable 
outcomes of some mysterious processes, the market's 
invisible hand plucking the choicest and teleporting them 
to more abundant grounds. 
Yet, this is far from being true. The developed countries, 
once a source of such emigration themselves (more than 
100,000 European scientists left for the USA in the wake of 
the Second World War) - actively seek to become its 
destination by selectively attracting only the skilled and 
educated citizens of developing countries. They offer them 
higher salaries, a legal status (however contingent), and 
tempting attendant perks. The countries of origin cannot 
compete, able to offer only $50 a month salaries, crumbling 
universities, shortages of books and lab equipment, and an 
intellectual wasteland.
The European Commission had this to say last month:
"The Commission proposes, therefore, that the Union 
recognize the realities of the situation of today: that on 
the one hand migratory pressures will continue and that on 
the other hand in a context of economic growth and a 
declining and aging population, Europe needs immigrants. In 
this context our objective is not the quantitative increase 
in migratory flows but better management in qualitative 
terms so as to realize more fully the potential of 
immigrants' admitted."
 
And the EU's Social and Employment Commission added, as it 
forecast a deficit of 1.7 million workers in Information 
and Communications Technologies throughout the Union:
 
"A declining EU workforce due to demographic changes 
suggests that immigration of third country nationals would 
also help satisfy some of the skill needs [in the EU]. 
Reforms of tax benefit systems may be necessary to help 
people make up their minds to move to a location where they 
can get a job...while ensuring that the social objectives 
of welfare systems are not undermined."
 
In Hong Kong, the "Admission of Talents Scheme" (1999) and 
"The Admission of Mainland Professionals Scheme" (May 2001) 
allow mainlanders to enter it for 12 month periods, if 
they:
 
"Possess outstanding qualifications, expertise or skills 
which are needed but not readily available in Hong Kong. 
They must have good academic qualifications, normally a 
doctorate degree in the relevant field."
 
According the January 2002 issue of "Migration News", even 
now, with unemployment running at almost 6%, the US H1-B 
visa program allows 195,000 foreigners with academic 
degrees to enter the US for up to 6 years and "upgrade" to 
immigrant status while in residence. Many H1-B visas were 
cancelled due to the latest economic slowdown - but the US 
provides other kinds of visas (E type) to people who invest 
in its territory by, for instance, opening a consultancy. 
The UK has just implemented the Highly Skilled Migrant 
Programme which allows "highly mobile people with the 
special talents that are required in a modern economy" to 
enter the UK for a period of one year (with indefinite 
renewal). Even xenophobic Japan allowed in 222,000 
qualified foreigners last year (double the figure in 1994).
Germany has absorbed 10,000 computer programmers (mainly 
from India and Eastern Europe) since July 2000. Ireland was 
planning to import twenty times as many over 7 years - 
before the dotcoms bombed. According to "The Economist", 
more than 10,000 teachers have left Ecuador since 1998. 
More than half of all Ghanaian medical doctors have 
emigrated (120 in 1998 alone). More than 60% of all 
Ethiopian students abroad never return. There are 64,000 
university educated Nigerians in the USA alone. More than 
43% of all Africans living in North America have acquired 
at least a bachelor's degree.
Barry Chiswick and Timothy Hatton demonstrated 
("International Migration and the Integration of Labour 
Markets", published by the NBER in its "Globalisation in 
Historical Perspective") that, as the economies of poor 
countries improve, emigration increases because people 
become sufficiently wealthy to finance the trip.
Poorer countries invest an average of $50,000 of their 
painfully scarce resources in every university graduate - 
only to witness most of them emigrate to richer places. The 
haves-not thus end up subsidizing the haves by exporting 
their human capital, the prospective members of their 
dwindling elites, and the taxes they would have paid had 
they stayed put. The formation of a middle class is often 
irreversibly hindered by an all-pervasive brain drain. 
Politicians in some countries decry this trend and deride 
those emigrating. In a famous interview on state TV, the 
late prime minister of Israel, Yitzhak Rabin, described 
them as "a fallout of the jaded". But in many impoverished 
countries, local kleptocracies welcome the brain drain as 
it also drains the country of potential political 
adversaries.
Emigration also tends to decrease competitiveness. It 
increase salaries at home by reducing supply in the labour 
market (and reduces salaries at the receiving end, 
especially for unskilled workers). Illegal migration has an 
even stronger downward effect on wages in the recipient 
country - illegal aliens tend to earn less than their legal 
compatriots. The countries of origin, whose intellectual 
elites are depleted by the brain drain, are often forced to 
resort to hiring (expensive) foreigners. African countries 
spend more than $4 billion annually on foreign experts, 
managers, scientists, programmers, and teachers.
Still, remittances by immigrants to their relatives back 
home constitute up to 10% of the GDP of certain countries - 
and up to 40% of national foreign exchange revenues. The 
World Bank estimates that Latin American and Caribbean 
nationals received $15 billion in remittances in 2000 - ten 
times the 1980 figure. This may well be a gross 
underestimate. Mexicans alone remitted $6.7 billion in the 
first 9 months of 2001 (though job losses and reduced hours 
may have since adversely affected remittances). The IADB 
thinks that remittances will total $300 billion in the next 
decade (Latin American immigrants send home c. 15% of their 
wages). 
Official remittances (many go through unmonitored money 
transfer channels, such as the Asian Hawala network) are 
larger than all foreign aid combined. "The Economist" 
calculates that workers' remittances in Latin America and 
the Caribbean are three times as large as aggregate foreign 
aid and larger than export proceeds. Yet, this pecuniary 
flood is mostly used to finance the consumption of basics: 
staple foods, shelter, maintenance, clothing. It is non-
productive capital.
Only a tiny part of the money ends up as investment. 
Countries - from Mexico to Israel, and from Macedonia to 
Guatemala - are trying to tap into the considerable wealth 
of their diasporas by issuing remittance-bonds, by offering 
tax holidays, one-stop-shop facilities, business 
incubators, and direct access to decision makers - as well 
as matching investment funds.



Migrant associations are sprouting all over the Western 
world, often at the behest of municipal authorities back 
home. The UNDP, the International Organization of Migration 
(IOM), as well as many governments (e.g., Israel, China, 
Venezuela, Uruguay, Ethiopia), encourage expatriates to 
share their skills with their counterparts in their country 
of origin. The thriving hi-tech industries in Israel, 
India, Ireland, Taiwan, and South Korea were founded by 
returning migrants who brought with them not only capital 
to invest and contacts - but also entrepreneurial skills 
and cutting edge technologies.
Thailand established in 1997, within the National Science 
and Technology Development Agency, a 2.2 billion baht 
project called "Reverse the Brain Drain". Its aim is to 
"use the 'brain' and 'connections' of Thai professionals 
living overseas to help in the Development of Thailand, 
particularly in science and technology." 
 
The OECD ("International Mobility of the Highly Skilled") 
believes that:
"More and more highly skilled workers are moving abroad for 
jobs, encouraging innovation to circulate and helping to 
boost economic growth around the globe."
But it admits that a "greater co-operation between sending 
and receiving countries is needed to ensure a fair 
distribution of benefits". 
The OECD noted, in its "Annual Trends in International 
Migration, 2001" that (to quote its press release):
"Migration involving qualified and highly qualified workers 
rose sharply between 1999 and 2000, helped by better 
employment prospects and the easing of entry conditions. 
Instead of granting initial temporary work permits only for 
one year, as in the past, some OECD countries, particularly 
in Europe, have been issuing them for up to five years and 
generally making them renewable. Countries such as 
Australia and Canada, where migration policies were mainly 
aimed at permanent settlers, are also now favoring 
temporary work permits valid for between three and six 
years ... In addition to a general increase in economic 
prosperity, one of the main factors behind the recent 
increase in worker migration has been the development of 
information technology, a sector where in 2000 there was a 
shortage of around 850,000 technicians in the US and nearly 
2 million in Europe ..."


 
 
But the OECD underplays the importance of brain drain:
"Fears of a "brain drain" from developing to 
technologically advanced countries may be exaggerated, 
given that many professionals do eventually return to their 
country of origin. To avoid the loss of highly qualified 
workers, however, developing countries need to build their 
own innovation and research facilities ... China, for 
example, has recently launched a program aimed at 
developing 100 selected universities into world-class 
research centers. Another way to ensure return ... could be 
to encourage students to study abroad while making study 
grants conditional on the student's return home."
The key to a pacific and prosperous future lies in a 
multilateral agreement between brain-exporting, brain-
importing, and transit countries. Such an agreement should 
facilitate the sharing of the benefits accruing from 
migration and "brain exchange" among host countries, 
countries of origin, and transit countries. In the absence 
of such a legal instrument, resentment among poorer nations 
is likely to grow even as the mushrooming needs of richer 
nations lead them to snatch more and more brains from their 
already woefully depleted sources.


The Labour Divide 
III. Entrepreneurship and Workaholism
By: Dr. Sam Vaknin 
Also published by United Press International (UPI)


The Dutch proudly point to their current rate of 
unemployment at less than 2%. Labour force participation is 
at a historically high 74% (although in potential man-hour 
terms it stands at 62%). France is as hubristic with its 
labour policies - the 35 hours week and the earlier 
reduction in employers' participation in social 
contributions. Employment is sharply up in a host of 
countries with liberalized labour markets - Britain, Spain, 
Ireland, Finland. The ECB brags that employment in the euro 
zone has been rising faster than in the USA since 1997.
This is a bit misleading. Euro zone unemployment is far 
higher and labour force participation far lower than 
America's. The young are especially disadvantaged. Only 
Britain is up to American standards. The European labour 
market is highly inefficient in matching demand and supply. 
Labour mobility among regions and countries is glacial and 
generous unemployment benefits are a disincentive to find a 
job. 
Reforms are creeping into the legislative agendas of 
countries as diverse as Italy and Germany. Labour laws are 
re-written to simplify hiring and firing practices and to 
expand the role of private employment agencies. But 
militant unions - such as Germany's IG Metal - threaten to 
undo all the recent gains in productivity and wage 
restraint. 
The European Commission - a bastion of "social Europe" - 
has just equalized the rights and benefits of temporary 
workers (with more than 6 weeks of tenure) and full-time 
ones. Yet another reformist adviser to the Italian Minister 
of Labour was assassinated. This was followed by a million-
workers strong demonstration in Rome's Circo Massimo 
against minor reforms in firing practices.


 
 
But the most successful and efficient labour market in the 
world, in the States, is associated with a different ethos 
and an idiosyncratic sociology of work. The frame of mind 
of the American employee and his employer is fundamentally 
at odds with European mentality. In Europe, one is entitled 
to be employed, it is a basic human right and a public 
good. Employers - firms and businessmen - are parties to a 
social treaty within a community of stakeholders with 
equipotent rights. Decisions are reached by consensus and 
consultation. Peer pressure and social oversight are 
strong.
Contrast this with the two engines of American economic 
growth: entrepreneurship and workaholism.
The USA, according to the "Global Entrepreneurship 
Monitor", is behind South Korea and Brazil in 
entrepreneurial activity prevalence index. But 7 percent of 
its population invested an average of $4000 per person in 
start-ups in 2000. 
A 10-country study conducted in 1997-9 by Babson College, 
the London School of Business, and the Kauffman Center for 
Entrepreneurial Leadership found gaping disparities between 
countries. More than 8 percent of all Americans started a 
new business - compared to less than 1.5 percent in 
Finland. Entrepreneurship accounted for one third of the 
difference in economic growth rates among the surveyed 
countries.
Entrepreneurship is a national state of mind, a vestige of 
the dominant culture, an ethos. While in Europe bankruptcy 
is a suicide-inducing disgrace bordering on the criminal - 
in the USA it is an integral and important part of the 
learning curve. In the USA, entrepreneurs are social role 
models, widely admired and imitated. In Europe they are 
regarded with suspicion as receptacles of avarice and non-
conformity. It is common in the States to choose 
entrepreneurship as a long-term career path. In Europe it 
is considered professional suicide.
In the USA, entrepreneurs are supported by an evolved 
network of financial institutions and venues: venture 
capital (VC), Initial Public Offerings (IPO's) in a 
multitude of stock exchanges, angel investors, incubators, 
technological parks, favourable taxation of stock options, 
and so on. Venture capitalists invested $18 billion in 
start-ups in 1998, $48 in 1999, almost $100 billion in 
2000. 



The dot.com crash deflated this tsunami - but only 
temporarily. US venture capitalists still invest four times 
the average of their brethren elsewhere - c. 0.5 percent of 
GDP. This translates to an average investment per start up 
ten times larger than the average investment outside 
America. 
American investors also power the VC industry in the UK, 
Israel, and Japan. A Deloitte Touche survey conducted last 
month (and reported in the Financial Times) shows that a 
whopping 89 percent of all venture capitalists predict an 
increase in the value of their investments and in their 
exit valuations in the next 6 months.
Entrepreneurs in the USA still face many obstacles - from 
insufficient infrastructure to severe shortages in skilled 
manpower. The July 2001 report of the National Commission 
on Entrepreneurship (NCOE) said that less than 5 percent of 
American firms that existed in 1991 grew their employment 
by 15 percent annually since, or doubled their employment 
in the feverish markets of 1992-7. But the report found 
high growth companies virtually everywhere - and most of 
them were not "hi-tech" either. Start-ups capitalized on 
the economic strengths of each of the 394 regions of the 
USA. 
As opposed to the stodgy countries of the EU, many post-
communist countries in transition (e.g., Russia, Estonia) 
have chosen to emulate the American model of job creation 
and economic growth through the formation of new 
businesses. International financial institutions - such as 
the EBRD and the World Bank - provided credit lines 
dedicated to small and medium enterprises in these 
countries. As opposed to the USA, entrepreneurship has 
spread among all segments of the population in Central and 
Eastern Europe. 
In a paper, prepared for USAID by the IRIS Centre in the 
University of Maryland, the authors note the surprising 
participation of women - they own more than 40% of all 
businesses established between 1990-7 in Hungary and 38% of 
all businesses in Poland.
Virtually all governments, east and west, support their 
"small business" or "small and medium enterprises" sector. 
The USA's Small Business Administration had its loan 
guarantee authority cut by half - yet to a still enviable 
$5 billion in FY 2003. But other departments have picked up 
the slack. 



The US Department of Agriculture (USDA) beefed up its Rural 
Business-Cooperative Service. The Economic Development 
Administration (EDA) supports "economically-distressed 
areas, regions, and communities". The International Trade 
Administration (ITA) helps exporters - as do OPIC (Overseas 
Private Investment Corporation), the US Commercial Service, 
the Department of Commerce (mainly through its Technology 
Administration), the Minority Business Development Agency, 
the US Department of Treasury, and a myriad other 
organizations - governmental, non-governmental, and private 
sector. 
Another key player is academe. New proposed bipartisan 
legislation will earmark $20 million to encourage 
universities to set up business incubators. Research 
institutes all over the world - from Israel to the UK - 
work closely with start-ups and entrepreneurs to develop 
new products and license them. They often spawn joint 
ventures with commercial enterprises or spin-off their own 
firms to exploit technologies developed by their 
scientists. 
MIT's Technology Licensing Office processes two inventions 
a day and files 3-5 patent applications a week. Since 1988, 
it started 100 new companies. It works closely with the 
Cambridge Entrepreneurship Center (UK), the Asian 
Entrepreneurship Development Center (Taiwan), the Turkish 
Venture Capital Association, and other institutions in 
Japan, Israel, Canada, and Latin America.
This is part of a much larger wave of in-house corporate 
innovation dubbed "intrapreneurship". The most famous 
example is "Post-It" which was developed, in-house, by a 3M 
employee and funded by the company. But all major and 
medium American firms encourage institutionalized 
intrapreneurship.
Entrepreneurship and intrapreneurship are often associated 
with another American phenomenon - the workaholic. Bryan 
Robinson in his 1998 tome, "Chained to the Desk", 
identifies four types of workaholism (or "work addiction"):
1. The Bulimic Workaholic Style - "Either I do it perfectly 
or not at all"
2. The Relentless Workaholic Style - "It has to be finished 
yesterday"
3. Attention-Deficit Workaholic Style - adrenaline junkies 
who use work as a focusing device 
4. Savouring Workaholic Style - slow, methodical, and 
overly scrupulous workers
Workaholism is confused by most Americans with "hard work", 
a pillar of the Protestant work ethic, by now an American 
ethos. Employers demand long work hours from their 
employees. Dedication to one's work results in higher 
financial rewards and faster promotion. Technology fosters 
a "work everywhere, work anytime" environment.
Even before the introduction of the 35 hours week in 
France, Americans worked 5 weekly hours more than the 
French, according to a 1998 study by the Families and Work 
Institute. Americans also out-worked the industrious 
Germans by 4 hours and the British by 1 hour. The average 
American work week has increased by 10% (to 44 weekly 
hours) between 1977-98. 
One third of all American bring work home, yet another 
increase of 10% over the same period. According to the 
Economic Policy Institute, Germans (and Italians) took 42 
days of vacation a year in 1998 - compared to 19 days taken 
by Americans. This figure may have since deteriorated to 13 
annual vacation days. Even the Japanese take 25 days a 
year.
In a survey conducted by Oxford Health Plans, 34 percent of 
all respondents described their jobs as "pressing and with 
no downtime". Thirty two percent never left the building 
during the working day and had lunch at their desk. 
Management promotes only people who work late, believed a 
full one seventh.
Most Europeans - with the notable exception of the British 
- regard their leisure and vacation times as well as time 
dedicated to family and friends as important components in 
a balanced life - no less important than the time they 
spend at work. They keep these realms strictly demarcated. 
Work addiction is gradually encroaching on the European 
work scene as well. But many Europeans still find American 
- and, increasingly British - obsession with work to be a 
distasteful part of the much derided "Anglo-Saxon" model of 
capitalism. They point at the severe health problems 
suffered by workaholics - three times as many heart 
failures as their non-addicted peers.
More than 10,000 workers died in 1997 in Japan from work-
stress related problems ("Karoshi") . The Japanese are even 
more workaholic than the Americans - a relatively new 
phenomenon there, according to Testsuro Kato, a professor 
of political science in Hitotsubashi University.
But what is the impact of all this on employment and the 
shape of labour?
The NCOE identifies five common myths pertaining to 
entrepreneurial growth companies:
1. The risk taking myth - "Most successful entrepreneurs 
take wild, uncalculated risks in starting their companies".
2. The hi-tech invention myth - "Most successful 
entrepreneurs start their companies with a breakthrough 
invention - usually technological in nature".
3. The expert myth - "Most successful entrepreneurs have 
strong track records and years of experience in their 
industries".
4. The strategic vision myth - "Most successful 
entrepreneurs have a well-considered business plan and have 
researched and developed their ideas before taking action".
5. The venture capital myth - "Most successful 
entrepreneurs start their companies with millions in 
venture capital to develop their idea, buy supplies, and 
hire employees".
Entrepreneurship overlaps with two other workplace 
revolutions: self-employment and flexitime. The number of 
new businesses started each year in the USA tripled from 
the 1960's to almost 800,000 in the 1990's. Taking into 
account home-based and part-time ventures - the number 
soars to an incredible 5 million new businesses a year. 
Most entrepreneurs are self-employed and work flexible 
hours from home on ever-changing assignments. This 
kaleidoscopic pattern has already "infected" Europe and is 
spreading to Asia. 
Small businesses absorbed many of the workers made 
redundant in the corporate downsizing fad of the 1980's. 
They are the backbone of the services and knowledge 
economy. Traditional corporations often outsource many of 
their hitherto in-house functions to such nascent, mom-and-
pop, companies (the "virtual corporation"). Small and 
medium businesses network extensively, thus reducing their 
overhead and increasing their flexibility and mobility. The 
future belongs to these proliferating small businesses and 
to those ever-fewer giant multinationals which will master 
the art of harnessing them. 


The Labour Divide 
IV. The Unions after Communism
By: Dr. Sam Vaknin 
Also published by United Press International (UPI)

Self Defense started as a Polish farmers' trade union a 
decade ago. It leveraged its populist and activist message 
to capture 20 percent of the electorate, at least in recent 
opinion polls. Last week it failed to bring Poland to a 
halt in protest against liberals in the central bank and 
iniquitous bureaucrats in Brussels. In the last elections 
it won 10 percent of the votes and 53 seats.
When the Belarusian Federation of Trade Unions convoked a 
rally against the government's bungled economic policies at 
the end of March, less than 1000 people turned up. 
Restrictions imposed by the often violent authorities 
coupled with sabotage by pro-government unions assured the 
dismal flop. 
Public sector trade unions in Macedonia have been more 
successful in extracting concessions from the government in 
an election year, though not before they embarked on a 
nation-wide strike timed to coincide with an ill-fated 
visit of the IMF mission. Despite strident warnings from 
the itinerant delegates, the minimum wage was raised 
heftily as were salaries in the public sector. The unions 
are about to strike again in an effort to extend the 
settlement to other state functionaries.
Romanian union members took the streets on May 30 
threatening to emulate Argentina's mass protests and 
shouting ominous anti-government and anti-IMF slogans. The 
government buckled under and agreed to raise the minimum 
wage by 70 percent within 12 months - as an opening gambit 
in the forthcoming round of bargaining. Industrial action 
in Romania in the past often ended in bloodshed and its 
governments are mindful of it. An agreement was signed with 
the prime minister on June 11.
On June 20, Spain's trade unions went on a general strike, 
contesting the prime minister's advanced plans to reform 
both hiring and firing laws and unemployment benefits. With 
both job protection and social safety nets threatened, the 
unions' success was less than striking. Only socialist 
dominated regions and cities responded and demonstrations 
flared up in only a couple of places.
The murder of a - second - government advisor on labor 
legislation in March has stiffened the Italian authorities' 
resolve to amend, however marginally, provisions pertaining 
to the reinstatement of "unfairly sacked" employees. Two 
small trade unions - CISL and UIL - have signed an 
agreement with the government last week, ditching a common 
front with CGIL, by far the largest syndicate with 5.4 
million members. CGIL called for regional strikes through 
July 11, followed by a general strike in September and 
October. It will also challenge the amendments to the law 
in the Constitutional Court.
Solidarity recently called upon the Polish administration 
to withdraw its amendments to the labor code and to allow 
it to negotiate with employers the voluntary expunging of 
anti-labor clauses. In what they called a "historic 
manifestation", Solidarity teamed up with erstwhile rival 
left-wing union to demonstrate in front of the Ministry of 
Labor. About 400 people showed up.
The one country bucking the trend may be Tony Blair's 
United Kingdom. It has adopted a minimum wage and forces 
employers to bargain collectively with unions if most of 
their employees want them to. The number of such 
"recognition" agreements, according to "The Economist", 
tripled between 2000 and 2001, to 470. Union membership in 
the service sector and among women is rising. 
Working days lost to strikes in Britain doubled from 1997, 
to almost 500,000 last year and the year before. Although a 
far cry from the likes of Ireland, Spain, France, and Italy 
- it is a worrisome trend. Interesting to note that many of 
the strikes are the result of performance-related wage gaps 
opening up among workers following botched privatizations 
(e.g., the railways, the post office). Bellicose, fogeyish, 
trade unions leverage the discontent bred by mismanagement 
to their advantage.
Failure to mobilize workers, half-hearted activism, 
acquiescence with policies implemented by right-wing 
governments, transformation into political parties, growing 
populism and anti-Europeanism - these are the hallmarks of 
these social movements in search of a cause. 
As more and more workers join the ranks of the middle 
class, own shares, participate in management through 
stakeholder councils, go entrepreneurial or self-employed, 
join the mostly non-unionized service sector, compete with 
non-unionized and thus more competitive workers in their 
own country or globally, become temporary and contract 
workers, or lose their jobs - union membership plummets. 
The ignominious implosion of Communism and socialism 
throughout Europe tainted the trade union movement, often 
linked to both. Membership was halved in Britain in the lat 
two decades. Union membership among the young in heavily 
unionized Sweden slumped to 47 percent last year - from 62 
percent in 1995.
The failure of trade unions the world over to modernize 
only exacerbates this inexorable decline. The structure of 
a traditional trade union often reflected the configuration 
of the enterprise it had to tackle - hierarchical, 
centralized, top-down. But rigorously stratified 
corporations went the way of central planning. 
Business resembles self-assembling ad-hoc networks, or a 
guerilla force - rather than the bottom heavy and 
elephantine organization of the early 20th century, when 
most unions were formed. Individual workers adapted to the 
ever-changing requirements of ever-shifting markets by 
increasing their mobility and adaptability and by immersing 
themselves in life-long education and training.
Consider the two ends of the spectrum: agency, freelance, 
and fixed-term contract employees (or even illegal aliens) 
and executives. Both are peripatetic. Workplace-orientated 
trade unionism cannot cater to their needs because they 
rarely stay put and because their skills are transferable. 
The UK's Economic and Social research Council Future of 
Work Programme, launched in 1998, studied the role of trade 
unions in the rapidly changing landscape of labor. In 
Working Paper no. 7 titled "Beyond the Enterprise? Trade 
Unions and the Representation of Contingent Workers" 
published last year by the Cardiff Business School, the 
authors say:
"The empirical pattern revealed by the research is complex 
... We also encountered situations where unions had made 
use of enterprise unionism to represent contingent workers. 
For example, enterprise collective agreements may be used 
to regulate the numbers of contingent workers employed 
together with their terms and conditions ... Departure from 
the enterprise model was most apparent within unions that 
organize freelance workers. The latter are mobile workers 
and unions adapt to their mobility by reliance on non-
enterprise forms of representation. Amongst agency and 
fixed-term contract workers, however, there is more 
emphasis on integration of the needs of these workers in 
the dominant, enterprise model of union representation. In 
part, this reflects the fact that agency and contract 
workers can develop a long-term employment relationship 
..."
Trade unions are adapting by modifying their recruitment 
methods. Unions solicit members in employment bureaus, temp 
agencies, job fairs. They offer "customized packages" of 
workplace-independent benefits and services dispensed by 
paid, roving, union officials, or sub-contractors. Many 
unions re-organized along geographical - rather than 
sectoral or enterprise-wide - lines. 
Syndicates are in the throes of appropriating functions 
from both the public and the private sector. Some unions 
offer job placement services, training, requalification, 
and skill acquisition classes, legal aid, help in setting 
up a business, seminars and courses on anything from 
assertiveness to the art of negotiating.
In some countries, unions, having failed to negotiate with 
multiple employers in different sectors all at once, 
resorted to - mostly failed - attempts to unilaterally 
dictate to employers the employment terms of temporary, 
freelance, and contract workers. This was done, for 
example, by publishing fee schedules. Others negotiated 
enterprise agreements with labor supply firms, thus 
circumventing the employers.
Unions have always tried to sway legislation by lobbying, 
making political contributions, and endorsing political 
candidates - as they have this past week Gerhard Schroeder 
who is up for re-election in Germany come September. The 
unions' ability to mobilize the vote makes them a 
formidable force even in relatively non-unionized 
countries, such as the USA. 
Recognizing their importance as a social institution, 
government or employer-financed unions still exist even in 
Western and better governed countries, such as Greece. In 
the former colonies of the British Empire, trade unions 
have to be approved by a registrar.
Unions act as think tanks, advocacy groups, and pressure 
groups rolled into one. They try to further job protection 
wherever possible - though the task is becoming 
increasingly untenable. Even old-fashioned unions put the 
media to good use in exerting pressure over their 
recalcitrant governments. 
Some scholars urge the unions to diversify and embrace 
work-related issues of minorities, the disabled, gays and 
lesbians, or the old. Egged on by the ILO International 
Programme on the Elimination of Child Labour (IPEC), 
Nepal's three main trade unions have targeted child labor 
in their country. They issued a code of conduct applicable 
to all their members. This is an example of the convergence 
of trade unions and NGO's. Syndicates are recasting 
themselves as labor non-governmental organizations.
Britain's once belligerent 6.8 million members strong 
umbrella Trade Unions Congress (TUC) now talks about a 
partnership with employers and labor-input in management 
decision making. German-style institutionalized 
consultations with employees regarding labor matters and 
crucial business decisions are already enshrined in EU 
directives. 
The unions are trying to modernize in form as well.
In Britain, trade unions put technology to good use. The 
Web sites of the TUC's member unions provide online 
membership application forms, information packs, and 
discussion of social and cultural issues. Jane Taylor, 
Information Manager at the Communications Workers Union, 
writing recently for the online research guides community, 
FreePint.com, commented about the new openness of the 
revamped unions:
"More and more unions are providing online access to their 
internal and external documents.  Some only provide access 
to their journals, but others put a full range of their 
documents online.  These are often the most interesting as 
they tend to be responses to government proposals, 
briefings on changes in employment legislation and 
briefings around the issues facing their members, whether 
they be teachers or postal workers."
But Web sites are insufficient weapons against the twin 
tsunamis of technological change and globalization. Unions 
often blame the latter - and its representatives, the WTO, 
the IMF, and the World Bank - of retarding workers' rights 
by imposing austerity measures on crumbling countries. 
The ILO Bureau for Workers' Activities (ACTRAV) organized, 
last September, a get together between union activists and 
representatives of international financial institutions. 
The IMF's much vaunted poverty reduction strategy which 
calls for consultations with all social stakeholders, trade 
unions included, as a precondition for new lending, was 
derided by the Rwanda representative. Quoted in the ILO's 
December 2001 issue of the "World of Work", he complained:
"One day I was called to meet a representative of the 
Bretton Woods Institution, but only during breakfast in a 
big hotel in Kigali! I would have preferred to have him 
meet the inhabitants too. He would have seen homeless 
people, sick people, starving people. He would have seen 
that while the financial institutions produce tons of pages 
of reports, poor people continue to die by the thousands."
Others grumbled that the IMF had a strange way of 
"consulting" them - they were invited to listen to a 
monologue regarding the policies of the Fund and then 
dismissed. The usual criticism prevailed:
"When one knows that in Africa an employee feeds five or 
six people, how can the Bretton Woods Institutions speak of 
a reduction of poverty by requiring the layoff of 25 per 
cent of civil servants? ... And when the IMF demands that 
Bulgaria reduce salaries even more, when they are already 
so low, one cannot speak of a measure aiming to reduce 
poverty ... In this country at war (Colombia), where 
unionists are being assassinated, where workers live in 
fear for their lives, the IMF has just requested the 
government to show more flexibility on the labour market! 
Where will that lead?"
Even the ILO joined the chorus accusing the IMF of 
violating the ILO's core conventions by arguing against 
collective bargaining and the provision of social 
protection. The delegates also demanded a labor-related 
input in all WTO deliberations.
The landscape of labor unionism is subject to tectonic 
shifts. But unionism need not conform to its image of 
archaic obsolescence. UNI and Ver.di are examples of what 
can be achieved when a timely message is combined with 
sprightly management methods and more than a modicum of 
spin doctoring.
United Network International (UNI) held its first World 
Congress last September in Berlin. It is the outcome of a 
synergetic merger between IT, telecom, print, and media-
entertainment unions. All told, UNI boasts 800 member 
unions in over 140 countries. It represents a break with 
both exclusively national and rigid sectoral unions. 
It is a "global union" - a cross-country, cross-sector body 
of representatives. Its natural counterparts are 
multinationals and IFI's. It already signed agreements with 
OTE, Carrefour, and Telefonica - three global telecom 
firms. Ten such umbrella organizations exist under the 
auspices of the Brussels-based International Confederation 
of Free Trade Unions (ICFTU).
The 3 million members strong Ver.di is the outcome of a 
March 2001 merger of five German labor syndicates. It is a 
services only union in a country where professionals prefer 
to belong to less proletarian "associations", the modern 
equivalents of medieval guilds. Its muscle, though, is a 
response to the perceived threat of "transnational 
capital". 



Yet, at the bottom of it all is the single member, the 
worker, who pays his or her dues and expects in return 
protection, better pay, better work conditions, larger 
benefits, and, above all, a sense of belonging and purpose. 
Referring to a ceremony to commemorate 20 years of 
Solidarity in Poland, a disgruntled former dissident welder 
poured his heart to the ILO's "World of Work":
"There are no workers at this feast, just men in coats and 
ties. Nothing remains of Solidarity except its name. It has 
lost its essence, they have betrayed and forgotten us."
This betrayal, the bourgeoisification and gentrification of 
trade union functionaries and erstwhile rebels, the cozying 
up to the powers that be, the bribes implicit in swapping 
the shop floor for the air conditioned offices and minibar-
equipped limousines, the infusion of trade unionism with 
nationalistic or populist agendas - these corrupting 
compromises, expediencies, amenities and tranquilizers may 
constitute the real danger to the continued existence of 
the labor movement.

 


The Labour Divide 
V. Employee Benefits and Ownership
By: Dr. Sam Vaknin 
Also published by United Press International (UPI)


Aligning the interests of management and shareholders in 
the West by issuing stock options to the former - has 
failed miserably. Options are frequently re-priced in line 
with the decline in share prices, thus denuding them of 
their main incentive. In other cases, fast eroding stock 
options motivated managers to manipulate the price of the 
underlying stock through various illegal and borderline 
practices. Stock options now constitute c. 60 percent of 
the pay of Fortune 500 executives. 
Whitney Tilson of Tilson Capital Partners notes in "The 
Motley Fool" that the hidden dilution of corporate equity 
caused by stock options inflates the stated profit per 
share.  In the USA, stock options are not treated as a 
business expense. Payment of the strike price by employees 
exercising their options augments cash flow from financing 
activities. Companies also get to deduct from their taxable 
income the difference between the strike price of the 
options and the market price of the stocks. As a result, 
overall earnings figures are exaggerated, sometimes 
grossly. 
"The Economist" quotes studies by Bear Stearns, the Federal 
Reserve, and independent economists, such as the British 
anti-stock-options crusader, Andrew Smith. 
These show that earnings per share may have been inflated 
by as much as 9 percent in 2000, that options amounted to 
c. 20 percent of the profits of big American firms (and 
three quarters of the profits of dot.coms), and that the 
distorted tax treatment of options overstated earnings 
growth by 2.5 percent annually between 1995 and 2000.
The Federal Reserve concludes:
"... There is presently no theoretical or empirical 
consensus on how stock options affect ... firm 
performance."
Towers Perrin, a leading global management consultancy, 
spot a trend. 
"(There is) a move by employees towards placing greater 
emphasis on long-term incentive plans ... (This is) 
creating new international currencies in remuneration ... 
(There is) a rapid, worldwide growth in stock option plans 
... Regardless of the type of company, stock options are 
much more widely used than performance plans, restricted 
stock plans, and other long-term incentive (LTI) programs 
in most countries."
Stock options are now used not only to reward employees - 
but also as retention tools, building up long term loyalty 
of employees to their workplace. Multinationals the world 
over, in an effort to counter competitive pressures exerted 
by their US adversaries in the global labour market, have 
resorted to employee stock options plans (ESOP). 
Vesting periods and grant terms as well as the events which 
affect the conditions of ESOPs - in short, the exact 
structure and design of each plan - are usually determined 
by local laws and regulations as well as by the prevailing 
tax regime. As opposed to popular mythology, in almost all 
countries, options are granted at market price (i.e., fair 
market value) and subject to certain performance criteria 
("hurdles"). 
Eligibility is mostly automatic and determined either by 
the employee's position or by his reporting level within 
the organization. Management in most countries was recently 
stripped of its discretionary powers to allocate options to 
employees - the inevitable outcome of widespread abuses.
Ed Burmeister of Baker McKenzie delineates two interlocking 
trends in the bulletin "Global Labour, Employment, and 
Employee Benefits":
"Two common trends are the broad-based, worldwide option 
grant, such as recently implemented at such companies as 
PepsiCo, Bristol-Myers, Squibb, Merck, and Eli Lilly & 
Company, and the extension of more traditional executive 
stock plans or rank-and-file, payroll-based stock purchase 
plans to employees of overseas subsidiaries. Employers are 
also beginning to implement stock-based incentive plans 
through use of offshore trusts. 
These trends have led to increased scrutiny of equity-based 
compensation by overseas taxing and regulatory bodies. 
Certain trends, such as the relaxation of exchange and 
currency controls in Europe and South America, have favored 
the extension of U.S.-based equity compensation plans to 
overseas employees."



Granting stock options is only one of the ways to motivate 
an employee. Some companies award their workers with 
stocks, rather than options, a practice known as "non-
restrictive stock bonus". Others dispense "phantom stocks" 
or "simulated equity plans" - using units of measurement 
and accounting whose value corresponds to the price 
fluctuations of a given number of shares. Yet others allow 
their employees to purchase company shares at a discount 
(section 423 stock purchase plans). 
David Binns, Associate Director of the Foundation for 
Enterprise Development describes novel solutions to the 
intricate problem of customizing a global stock options and 
equity plan:
"Often the companies provide international staff with a 24-
hour loan facility whereby they can direct a designated 
stock broker in the U.S. to give them a loan sufficient to 
exercise their options. The broker then immediately sells 
enough shares to pay off the loan and transaction fees and 
deposits the remaining shares in the employee's account.  
  
"Another approach to international equity plans is to 
create an " International ESOP" in a tax-free haven. Each 
of the company's international subsidiaries are given an 
account within the trust and each participating employee 
has an individual account with the appropriate subsidiary. 
The subsidiary corporations then either purchase shares of 
the parent corporation based on profitability or receive 
grants of stock from the parent and those shares are 
allocated to the accounts of the participating employees. 
The shares are held in a trust for the employees; at 
termination of service, the ESOP trustee sells the 
employee's shares and makes a distribution of the proceeds 
to the employee. This has the advantage of alleviating 
securities registration concerns in most countries as well 
as avoiding certain country regulations associated with the 
ownership of shares in foreign corporations"
As far back as 1997, virtually all American, Canadian, and 
British companies offered one kind of LTI plan, or another. 
According to the Foundation for Enterprise Development, 
employees own significant blocks of shares - aggregately 
valued at more than $300-400 billion - in more than 15,000 
American corporations. This amounts to 5-7 percent of the 
market capitalization of American firms. The process was 
facilitated by the confluence of divestiture, corporate 
downsizing, and privatization of state and federal assets.
Dramatic increases have occurred elsewhere as well. In 
Argentina - 40 percent of all firms offered LTI last year 
(compared to 20 percent in 1997). In Belgium, the swing was 
even more impressive - from 25 percent to 75 percent. 
Hong Kong went from 25 percent to 50 percent. China - from 
5 percent to 45 percent. Germany tripled from 20 to 60 
percent. Italy jumped from 20 to half of all companies. 
Spain galloped from 5 to 50 percent. Even staid Switzerland 
went from 20 percent of all firms offering LTI - to 60 
percent.
Stock options are gaining in popularity in central Europe 
as well. More than 10 percent of the employees of S&T, a 
Vienna-based IT solutions provider, owned stock options by 
the end of 2000. The company operates mainly in Slovenia, 
Slovakia, and the Czech Republic - but is fast expanding in 
a host of other countries, including Bulgaria and Russia. 
"Internet Securities" - a publisher of emerging market news 
and information based in Bratislava, Bucharest, Budapest, 
Prague, Sofia, and Warsaw- also rewards its employees with 
stock options. The list is long and is getting longer by 
the day.
Watson Wyatt, a human resources consultancy, conducted a 
detailed survey among firms in CEE (central and east 
Europe) in 1999. It traced the introduction of non-wage 
employee benefits to the fierce competition for scarce 
human capital among multinationals at the beginning of the 
1990's. Later, as qualified and skilled personnel became 
more abundant, employers faced the need to retain them.
Perks such as cars, death and disability insurance, medical 
benefits, training, and relocation and housing loans have 
become the norm in the leading EU candidates - Poland, 
Hungary, Czech Republic, the Baltic States, and Slovenia. 
Such habits are spreading even as far as Kazakhstan, where 
most workers enjoy supplementary medical benefits. But 
progress is by no means uniform. In some countries, such as 
Croatia, supplemental coverage extends to less than one 
quarter of the work force.
LTI programs are offered mainly by IT and telecom companies 
- 63 percent of the 25 surveyed by Watson Wyatt had an ESOP 
in place. But, as opposed to the practice in the West, few, 
if any, firms in CEE limit eligibility to the upper 
hierarchy. Still, management enjoys more sizable benefits 
that non-executive employees.



Watson Wyatt note that offering enhanced retirement 
benefits is fast becoming a major attraction and retention 
technique. Where state provision of pensions is insecure or 
dwindling - Russia, Bulgaria, Hungary, Slovenia - close to 
20 percent of all workers had supplementary retirement 
funds provided by their employers in 1999.  
Their ranks have been since joined by other pension-
reforming countries, such as Croatia and Romania. Where 
pension reform has stalled - e.g., Lithuania and the Czech 
Republic - less than 1 percent of all workers enjoyed 
employer retirement largesse in 1999.
There is a convergence between East and West. Privatization 
in post-communist CEE countries often took the form of 
management and employee buyouts (MEBO). Employees ended up 
with small stakes in their firms, now owned by the 
managers. This model proved popular in countries as diverse 
as Croatia, Macedonia, Poland, Romania, Slovakia, and 
Slovenia. 
In Poland, more than 1000 small and medium enterprises were 
privatized by "liquidation" - a management cum employee 
lease-buyout. Leveraged ESOP's - employees purchasing 
company shares over many years and on credit - played a 
part in at least 150 major Hungarian privatization deals. 
Russia has become the country with the largest employee-
ownership in the world. More than two thirds of the 12,000 
medium and big Russian enterprises privatized after 1992 
are majority owned by employees. But MEBO also 
characterized privatizations in France, the UK, Nigeria, 
Sri Lanka, Chile, Argentina, Pakistan, and Egypt, among 
many others. 
More than 4 percent of all Dutch firms - c. 2000 in all - 
are partly employee-owned. More than 12,000 French 
companies sold $10 billion  in shares to their employees - 
an average of $1000 per employee. Profit sharing schemes in 
firms with less than 50 employees are compulsory in France. 
More than a quarter of the workforce - some 5 million 
people - are covered by 16,000 such schemes. Ten thousand 
other, voluntary, plans cover 2.5 million workers.
Sixty percent of all MEBO's in the former East Germany 
relied on public financing. The government of British 
Columbia in Canada is equally involved through its 
"Employee Share Ownership Program". Chile provided 
employees with subsidized loans to purchase shares in 
privatized firms in what was dubbed "labour capitalism". 
Egypt encouraged the establishment of almost 150 Employee 
Shareholder Associations.
Initially, MEBO resulted in gross inefficiencies as the new 
owners looted their own firms and maintained an 
insupportably high level of employment. The newly private 
firms suffered from under-investment and poor management. 
Shoddy, unwanted, products and deficient marketing led to 
poor sales, massive layoffs, and labour conflicts. 
Employees were quick to turn around and sell their 
privatization vouchers or shares to their managers, to 
speculators, or to foreign investors.
Yet, as foreign capital replaced corrupt or inapt 
indigenous managers and as workers became more 
sophisticated and less amenable to manipulation - employee 
ownership began to bear fruit. China has learned the lesson 
and has introduced a gradual transition to employee 
("social") ownership of enterprises at the grassroots, 
local community, level. It also strives to emulate Japan's 
extensive and successful experience since the early 1960's.
Employee ownership is evolving in ways the fathers of 
socialism would have approved of. Employees throughout 
Asia, Africa, and Latin America - egged on by the likes of 
the World Bank and regional development institutions - now 
form numerous collectives and labour or producer 
cooperatives. Some firms are even owned by trade unions 
through their proactive pension funds. 
Jacquelyn Yates describes a typical cooperative in her 
essay "National Practices in Employee Ownership":
"... The employees own their firms. Typically, prospective 
members work for a probationary period, must apply to join 
the cooperative and are screened by a membership committee. 
Labor cooperatives vary in the percentage of their 
employees who are members. A common guideline is to take no 
more members than the cooperative can guarantee to employ 
on a full-time basis. Members make a capital contribution 
in kind or in cash, sometimes through payroll withholdings. 
This is the member's account value, which will be refunded 
(with or without interest), at the time of separation from 
the enterprise. 
Governance is usually based on one vote for each member, 
and the elected directors of the enterprise set overall 
policy and hire top management. The main benefits of 
membership are job security, participation in the 
distribution of profits, and above average social benefits. 
Sometimes membership means participation in enterprise 
losses or making additional contributions to the reserve. 
In some countries, the assets of the cooperative can never 
be distributed to its members, preventing them from 
realizing long-term appreciation in the cooperative's 
value, but creating an incentive to continue it over many 
years."
Yates reviews other practices, such as the labour banks and 
the workingmen's funds. The former are financial 
institutions that invest in the shares of companies that 
employ their depositors. Workingmen's funds are 
collectively owned portfolios of the employer's stock owned 
by employees and they were first tried in Sweden. 
Similarly, the UK and Ireland have legalized the employee 
stock ownership trust.
Employee ownership of firms is a controversial issue with 
strange bedfellows on both sides of the raging debate. 
Thus, the idea has been fiercely resisted in the past by 
both employers and unions. There is no social consensus 
regarding the voting rights of stocks owned by employees, 
their voluntary or compulsory nature, their tax treatment, 
their relationship to retirement accounts, the desired 
length of holding period, the role of the unions and the 
state, employee representation on the board of directors 
and so on.
It is ironic, though, that the ostensible triumph of 
capitalism resulted in the resurgence of employee-ownership 
of the means of production. It seems that to preserve 
industrial peace as well as to motivate one's workers - 
sharing of ownership and its attendant pecuniary benefits 
is called for, on a scale which far exceeds anything dreamt 
of in socialist countries.


Immigrants and the Fallacy of Labour Scarcity 
By: Dr. Sam Vaknin 
Also published by United Press International (UPI)


Jean-Marie Le Pen - France's dark horse presidential 
contender - is clearly emotional about the issue of 
immigration and, according to him, its correlates, crime 
and unemployment. His logic is dodgy at best and his 
paranoid xenophobia ill-disguised. But Le Pen and his ilk - 
from Carinthia to Copenhagen - succeeded to force upon 
European mainstream discourse topics considered hitherto 
taboos. For decades, the European far right has been asking 
all the right questions and proffering all the far answers.
Consider the sacred cow of immigration and its emaciated 
twin, labour scarcity, or labour shortage.
Immigrants can't be choosy. They do the dirty and dangerous 
menial chores spurned by the native population. At the 
other extreme, highly skilled and richly educated 
foreigners substitute for the dwindling, unmotivated, and 
incompetent output of crumbling indigenous education 
systems in the West. As sated and effete white populations 
decline and age, immigrants gush forth like invigorated 
blood into a sclerotic system. 
According to the United Nations Population Division, the EU 
would need to import 1.6 million migrant workers annually 
to maintain its current level of working age population. 
But it would need to absorb almost 14 million new, working 
age, immigrants per year just to preserve a stable ratio of 
workers to pensioners.
Similarly hysterical predictions of labour shortages and 
worker scarcity abounded in each of the previous three 
historic economic revolutions. 
As agriculture developed and required increasingly more 
advanced skills, the extended family was brutally thrust 
from self-sufficiency to insufficiency. Many of its 
functions - from shoemaking to education - were farmed out 
to specialists. But such experts were in very short supply. 
To overcome the perceived workforce deficiency, slave 
labour was introduced and wars were fought to maintain 
precious sources of "hands", skilled and unskilled alike.
Labour panics engulfed Britain - and later other 
industrialized nations such as Germany - during the 19th 
century and the beginning of the twentieth. 
At first, industrialization seemed to be undermining the 
livelihood of the people and the production of "real" 
(read: agricultural) goods. There was fear of over-
population and colonial immigration coupled with 
mercantilism was considered to be the solution.
Yet, skill shortages erupted in the metropolitan areas, 
even as villages were deserted in an accelerated process of 
mass urbanization and overseas migration. A nascent 
education system tried to upgrade the skills of the 
newcomers and to match labour supply with demand. Later, 
automation usurped the place of the more expensive and 
fickle laborer. But for a short while scarce labour was so 
strong as to be able to unionize and dictate employment 
terms to employers the world over.
The services and knowledge revolutions seemed to 
demonstrate the indispensability of immigration as an 
efficient market-orientated answer to shortages of skilled 
labour. Foreign scientists were lured and imported to form 
the backbone of the computer and Internet industries in 
countries such as the USA. Desperate German politicians 
cried "Kinder, not Inder" (children, not Indians) when 
chancellor Schroeder allowed a miserly 20,000 foreigners to 
emigrate to Germany on computer-related work visas.
Sporadic, skill-specific scarcities notwithstanding - all 
previous apocalyptic Jeremiads regarding the economic 
implosion of rich countries brought on by their own 
demographic erosion - have proven spectacularly false. 
Some prophets of doom fell prey to Malthusian fallacies. 
According to these scenarios of ruination, state pension 
and health obligations grow exponentially as the population 
grays. The number of active taxpayers - those who 
underwrite these obligations - declines as more people 
retire and others migrate. At a certain point in time, the 
graphs diverge, leaving in their wake disgruntled and 
cheated pensioners and rebellious workers who refuse to 
shoulder the inane burden much longer. The only fix is to 
import taxable workers from the outside.
Other doomsayers gorge on "lumping fallacies". These 
postulate that the quantities of all economic goods are 
fixed and conserved. There are immutable amounts of labour 
(known as the "lump of labour fallacy"), of pension 
benefits, and of taxpayers who support the increasingly 
insupportable and tenuous system. Thus, any deviation from 
an infinitesimally fine equilibrium threatens the very 
foundations of the economy. 
To maintain this equilibrium, certain replacement ratios 
are crucial. The ratio of active workers to pensioners, for 
instance, must not fall below 2 to 1. To maintain this 
ratio, many European countries (and Japan) need to import 
millions of fresh tax-paying (i.e., legal) immigrants per 
year.
Either way, according to these sages, immigration is both 
inevitable and desirable. This squares nicely with 
politically correct - yet vague - liberal ideals and so 
everyone in academe is content. A conventional wisdom was 
born.
Yet, both ideas are wrong. These are fallacies because 
economics deals in non-deterministic and open systems. At 
least nine forces countermand the gloomy prognoses 
aforementioned and vitiate the alleged need for 
immigration:
I. Labour Replacement
Labour is constantly being replaced by technology and 
automation. Even very high skilled jobs are partially 
supplanted by artificial intelligence, expert systems, 
smart agents, software authoring applications, remotely 
manipulated devices, and the like. The need for labour 
inputs is not constant. It decreases as technological 
sophistication and penetration increases. Technology also 
influences the composition of the work force and the 
profile of skills in demand. 
As productivity grows, fewer workers produce more. American 
agriculture is a fine example. Less than 3 percent of the 
population are now engaged in agriculture in the USA. Yet, 
they produce many times the output produced a century ago 
by 30 percent of the population. Per capita the rise in 
productivity is even more impressive.
II. Chaotic Behaviour
All the Malthusian and Lumping models assume that pension 
and health benefits adhere to some linear function with a 
few well-known, actuarial, variables. This is not so. The 
actual benefits payable are very sensitive to the 
assumptions and threshold conditions incorporated in the 
predictive mathematical models used. Even a tiny change in 
one of the assumptions can yield a huge difference in the 
quantitative forecasts.



III. Incentive Structure
The doomsayers often assume a static and entropic social 
and economic environment. That is rarely true, if ever. 
Governments invariably influence economic outcomes by 
providing incentives and disincentives and thus distorting 
the "ideal" and "efficient" market. The size of 
unemployment benefits influences the size of the workforce. 
A higher or lower pension age coupled with specific tax 
incentives or disincentives can render the most rigorous 
mathematical model obsolete.
IV. Labour Force Participation
At a labour force participation rate of merely 60% 
(compared to the USA's 70%) - Europe still has an enormous 
reservoir of manpower to draw on. Add the unemployed - 
another 8% of the workforce - to these gargantuan numbers - 
and Europe has no shortage of labour to talk of. These 
workers are reluctant to work because the incentive 
structure is titled against low-skilled, low-pay, work. But 
this is a matter of policy. It can be changed. When push 
comes to shove, Europe will respond by adapting, not by 
perishing, or by flooding itself with 150 million 
foreigners.
V. International Trade
The role of international trade - now a pervasive 
phenomenon - is oft-neglected. Trade allows rich countries 
to purchase the fruits of foreign labour - without 
importing the laborers themselves. Moreover, according to 
economic theory, trade is preferable to immigration because 
it embodies the comparative advantages of the trading 
parties. These reflect local endowments.
VI. Virtual Space
Modern economies are comprised 70% of services and are 
sustained by vast networks of telecommunications and 
transport. Advances in computing allow to incorporate 
skilled foreign workers in local economic activities - from 
afar. Distributed manufacturing, virtual teams (e.g., of 
designers or engineers or lawyers or medical doctors), 
multinationals - are all part of this growing trend. Many 
Indian programmers are employed by American firms without 
ever having crossed the ocean or making it into the 
immigration statistics.



VII. Punctuated Demographic Equilibria
Demographic trends are not linear. They resemble the 
pattern, borrowed from evolutionary biology, and known as 
"punctuated equilibrium". It is a fits and starts affair. 
Baby booms follow wars or baby busts. Demographic 
tendencies interact with economic realities, political 
developments, and the environment. 
VIII. Emergent Social Trends
Social trends are even more important than demographic 
ones. Yet, because they are hard to identify, let alone 
quantify, they are scarcely to be found in the models used 
by the assorted Cassandras and pundits of international 
development agencies. Arguably, the emergence of second and 
third careers, second families, part time work, flextime, 
work-from-home, telecommuting, and unisex professions have 
had a more decisive effect on our economic landscape than 
any single demographic shift, however pronounced.
IX. The Dismal Science
Immigration may contribute to growing mutual tolerance, 
pluralism, multiculturalism, and peace. But there is no 
definitive body of evidence that links it to economic 
growth. It is easy to point at immigration-free periods of 
unparalleled prosperity in the history of nations - or, 
conversely, at recessionary times coupled with a flood of 
immigrants. 
So, is Le Pen right?
Only in stating the obvious: Europe can survive and thrive 
without mass immigration. The EU may cope with its labour 
shortages by simply increasing labour force participation. 
Or it may coerce its unemployed (and women) into low-paid 
and 3-d (dirty, dangerous, and difficult) jobs. Or it may 
prolong working life by postponing retirement. Or it may do 
all the above - or none. But surely to present immigration 
as a panacea to Europe's economic ills is as grotesque a 
caricature as Le Pen has ever conjured.


The Future of Work
By: Dr. Sam Vaknin 
Also published by United Press International (UPI)




A US Department of Labor report published, aptly, on Labor 
Day 1999, summed up the conventional wisdom regarding the 
future of this all-pervasive pastime we call "work". 
Agriculture will stabilize, service sector jobs will 
mushroom, employment in the manufacturing sector will be 
squeezed by "just in time" inventory and production systems 
and by labor-intensive imports. An ageing population and 
life-prolonging medicines will prop up the healthcare 
sector.
Yet, the much touted growth in services may partly be a 
statistical illusion. As manufacturing firms and households 
contracted out - or outsourced - hitherto internal 
functions, their employment shrank while boosting the job 
figures of their suppliers. From claims and wage processing 
to take-away restaurants and daycare centers, this shift 
from self-reliance to core competencies spawned off a 
thriving service sector. This trend was further enhanced by 
the integration of women in the workforce.
The landscape of future work will be shaped by 
technological change and globalization. The latter is 
erroneously considered to be the outcome of the former. But 
as "The Economist" has pointed out in a series of "School 
Briefs", the world has been much more globalized one 
hundred years ago, long before the Internet. 
These two independent trends reinforce each other in a 
virtuous cycle which will profoundly impact the future of 
work. Enhanced flows of information increase market 
efficiency, partly through global competition and price 
transparency and partly through shorter product life 
cycles. 
But innovation by itself would not have had such an impact 
on work patterns. Manufacturing techniques - chiefly 
miniaturization - had a profound effect on the relocation 
of work from factory and office to home and car. Machine 
tools and office equipment well into the 1980's were too 
cumbersome to install at home. 
Today everyone has a telephone and many have a fax, a 
mobile phone, an Internet connection, and a PC. As a 
result, work-from-home and flextime are burgeoning. 
Increasingly - with the advent of Internet-enabled PDA's, 
laptops, beepers, and wireless access to e-mail and the Web 
- so does work-on-the-move: in cars, in trains, everywhere. 
Work has become ubiquitous.
This harks back to the past. Even at the end of the 19th 
century - at the height of the Industrial Revolution - more 
than half the population still worked from home. Farmers, 
medical doctors, blacksmiths, small time retailers - lived 
and slogged in combined business and domestic units. A 
steady career in an organisation is a recent invention, as 
William Bridges pointed out in his book "Job Shift". 
Harlan Cleveland and Garry Jacobs explained the emergence 
of Organisation Man in  the newsletter of the World Academy 
of Art and Science:
"The job -- the kind that you had, or hoped to get -- 
became a central fixture of life in industrial countries. 
Its importance was great because it served many needs. For 
managers and efficiency experts, job assignments were the 
key to assembly-line manufacturing. For union organizers, 
jobs protected the rights of workers. For political 
reformers, standardized civil service positions were the 
essence of good government. Jobs provided an identity to 
immigrants and recently urbanized farm workers. They 
provided a sense of security for individuals and an 
organizing principle for society."
Currently, three types of work are surfacing. Old, 
industrial-age, permanent, and workplace-bound jobs are 
increasingly the preserve of low and medium skilled workers 
- about 80 percent of the workforce in Britain. New, 
itinerant, ad-hoc, home-based, technology-intensive, brand-
orientated, assignment-centered careers characterize 
another tenth of the workforce. Temporary and contract work 
work - mainly in services - account for the rest. It is a 
trichotomous landscape which supplanted the homogeneous 
labor universe of only two decades ago.
Nowadays, technologically-literate workers - highly 
skilled, adaptable, well-educated, and amenable to 
nontraditional work environments - are sought by employers 
and rewarded. The low skilled, computer-illiterate, 
uneducated, and conservative - lag behind. 



In 1999, more than 13 million people in the USA alone held 
multiple jobs, or part time, or contract jobs (i.e., 
freelancing). Work from home and flextime accounted for one 
fifth of all other employees. Contrary to their image as 
rigid labor marketplaces, self-employment and temporary 
work were more prevalent in the European Union (except 
Britain) than in the USA.
The Bureau of Labor statistics in the US Department of 
Labor noted these demographic changes to the workforce. 
Though pertaining to the USA, they are applicable, in 
varying degrees, to the rest of the world, with the 
exception of certain parts of Africa. America is a 
harbinger of trends in employment and of changes in the 
nature of work.
1. Labor force growth will slow down to an annual 0.2 
percent after 2015 - compared to 2.6 percent between 1970-
1980 and 1 percent during the last decade. This is when 
Baby Boomers start retiring and women's participation will 
level off. Women already make almost half the labor force. 
More than three quarters of all mothers are working. The 
propensity to hold a job is strongest among single mothers.
2. The median age of the labor force will reach a 
historically unprecedented 41 years in 2008 - compared to 
35 in 1978. As middle management layers are made redundant 
by technology and as start-ups mature - experienced 
executives will be in great demand and short supply. Even 
retirees are being recalled as advisors, or managers of 
special projects. This - coupled with a dramatic increase 
in functional life expectancy - may well erode the very 
concept of retirement.
The Urban Institute predicted, for ABCNews, that, as 
Generation X, Generation Y, and young immigrants enter the 
workforce, it will be polarized between the under-25's and 
the over-45's.
3. Labor force growth is strongest among immigrants and 
minorities. In the USA, they will make up more than a 
quarter of the total workforce in 2008. Those with higher 
education and those devoid even of a high school diploma 
are over-represented among recent immigrants. 
4. College graduates already earn twice as much - and their 
earnings are still growing in real terms - as people with a 
high school diploma whose inflation-adjusted earnings are 
dwindling. High school dropouts are four times as likely to 
be unemployed as college graduates. These disparities are 
going to be further exacerbated. On the job training allows 
people to catch up.
5. Five of the ten fastest growing occupations are 
computer-related and three are connected to healthcare. 
Yet, contrary to hype, half of the new jobs created by 2008 
will still be in traditional, labor-intensive, sectors such 
as retail or trucking. One in two jobs - and two in three 
new ones - are in small companies, with less than 100 
workers. Even behemoths, like General Motors, now resemble 
networks of small, autonomous, businesses and profit and 
loss centers.
6. Much hectoring and preaching notwithstanding, the burden 
of wage-related taxes and benefits in the USA is heavy, at 
one half the base salary - though it has held stable at 
this level since 1970.
7. The shift from defined benefit to defined contribution 
retirement plans continues apace. This enhances labor 
mobility as workers are able o "carry" their personal plans 
with them to new employers. Still, the looming social 
security crisis is far from resolved. In 1960, there were 5 
workers per every beneficiary. 
By 2060, there will be less than two. Moreover, close to a 
third of all beneficiaries will be the relatives of retired 
or deceased workers - rather than the pensioners 
themselves. This is likely to create severe social tensions 
between workers and beneficiaries.
8. Job tenure has decreased markedly in all age groups over 
the last two decades - but only among men. Both boom and 
bust contributed. Economic growth encourages job-hunting, 
job hopping, and job-shopping. Recessions foster downsizing 
and bankruptcies. Jobs are mainly obtained through nimble 
networking. This is especially true at the higher rungs of 
the income ladder.
Still, the median figure for job stability hasn't changed 
much since 1983 in both the USA and the UK. Moreover, some 
jobs - and employment in some states - are far more stable 
than others. Transformation across all professions took 
place among workers younger than 32 and workers with long 
tenure. 
The job stability of the former decreased markedly. By the 
age of 32 they had already worked for 9 different firms, 
according to figures published by "The Economist". The job 
security of the latter has vanished as firms, until less 
than 2 years ago, succumbed to a "youth cult" and inanely 
rid themselves of precious social and professional capital.
Another phenomenon is the emergence of a Hollywood-like 
star system among ultra-skilled workers - both technical 
and executive. Many of them act as freelancers and get paid 
with a mixture of cash and equity. They regard themselves 
as a brand and engage in brand marketing on a global scale. 
The more capable they are of managing organisational 
change, leading teams, and identifying business 
opportunities - the more rewarded they are, according to a 
study by Timothy Bresnahan, published in the June 1999 
issue of the "Economic Journal".
9. About 3 percent of the workforce are employed through 
temporary help agencies. This is 6 times the figure in 
1983. Public prejudices aside, even engineers and system 
analysts work as "temps". Many people prefer Mac-jobs, 
freelancing, or temporary assignments. It allows them to 
preserve their independence and free lifestyle. More than 
90 percent of all Americans are happily ensconced in their 
jobs.
10. Work gradually encroaches on family life and leisure 
time. In 1969, couples aged 25-54 toiled a combined 56 
hours a week. By 2000, they were spending 67 hours at work 
- or 70 hours if they were childless. This increasing 
absence has probably contributed to the disintegration of 
the nuclear family, the emergence of alternative family 
systems, and the loosening of community ties.
Workplaces and employers - and employment laws - have as 
much adapting to do as do employees.
The UK's Economic and Social research Council runs a Future 
of Work Programme, launched in 1998, to investigate 
"changing organisational forms and the reshaping of work". 
The program studies novel work-organisation structures - 
temporary work, franchise, multi-employer sites, 
partnerships, supply-chain collaboration, and variants of 
outsourcing, including outsourcing to the company's own 
employees. 
In Working Paper no. 14 published November 2000, the 
authors say:
"The development of more complex organisational forms 
involving cross-organisation networking, partnerships, 
alliances, use of external agencies for core as well as 
peripheral activities, the growth of multi-employer sites 
and the blurring of public/private sector divide have 
implications for both the legal and the socially 
constituted nature of the employment relationship. 
The notion of a clearly-defined employer-employee 
relationship becomes difficult to uphold under conditions 
where the employee is working in project teams or on site 
beside employees from other organisations, where 
responsibilities for performance or for health and safety 
are not clearly defined, or involve organisations other 
than the employer.



This blurring of the relationship affects not only legal 
responsibilities, grievance and disciplinary issues and the 
extent of transparency and equity in employment conditions, 
but also the definition, constitution, and implementation 
of the employment contract."
In a futuristic piece published in the last day of the 
millennium, ABCNews described "corporate hotels" where one 
would work with other employees from the vicinity. Up to 
one third of all employees will work from home, according 
to David Pearce Snyder of "The Futurist". Companies will 
share "hot desks" and start-up incubators will proliferate.
But the phenomenon of self-employment in conjunction with 
entrepreneurship, mostly in the framework of startups and 
mainly in the services and technology sectors - is still 
marginal. Contrary to contemporary myths, entrepreneurship 
and innovation are largely in-house corporate phenomena - 
known as "intrapreneurship". 
Yet, workers did not benefit from the wealth created by 
both the technology-engendered productivity rise and the 
ensuing capital markets bubble. Analysts, such as Alan 
Harcrow of "Workforce" magazine have long been sounding the 
alarm: "The thing is, the average employee hasn’t been able 
to enjoy the benefits of increased productivity. There’s no 
reward." 
A recent tome by Kevin Phillips - "Wealth and Democracy: A 
Political History of the American Rich" - claims: 
"The top 1 percent pocketed 42 percent of the stock market 
gains between 1989 and 1997, while the top 10 percent of 
the population took 86 percent." Most American had more 
invested in their car than in their stock exchange 
portfolio. To Phillips, America is an old-fashioned, though 
no less pernicious for that, plutocracy.
No wonder that 40 percent of all employees hate the notion 
of working - though they may like the specific jobs they 
are in. Work is perceived by them as an evil necessary to 
finance their vacations, hobbies, and socializing - and, by 
many, as a form of exploitation. Insecure, bored, and 
disgruntled workers make bad entrepreneurs. Forced self-
employment does not amount to entrepreneurship and, even in 
America, the former far outweighs the latter. 



There are other ominous signs. The worker of the future 
will interface mainly with machines or with others through 
machines - often from home. The merging of home and work, 
the seamless fusion of leisure time and time on the job - 
are already creating a privacy backlash and "out of the rat 
race" social movements. 
Admittedly, future workers are likely to be much more 
autonomous than their predecessors - either by working from 
home or by participating is "self-governing teams" and 
"stakeholder councils". Yet, the aforementioned blurring of 
boundaries between private life and working time will exact 
a heavy psychological and social toll. It will impact 
family life adversely and irreversibly. Job insecurity 
coupled with job hopping and personal branding will 
transform most elite workers into free - but anxious - 
agents trapped in a process of perpetual re-education. 
As globalization and technological ubiquity proceed apace, 
competition will grow relentless and constant. Immigration 
and remote work will render it also global. Insurance 
claims processing, airline bookings, customer care, and 
many other business-support services are farmed out to 
India. Software development takes place in Israel and 
Ireland.
Society and community will unravel in the face of these sea 
changes. Social safety nets and social contracts - already 
stretched beyond their foreseen limits - will crumble. Job 
protection, tenure privileges, generous unemployment, 
retirement, and healthcare benefits - will all vanish from 
the law books and become a nostalgic memory. The 
dispossessed will grow in number and in restlessness. 
Wealth will further concentrate in the hands of the few - 
the educated, the skilled, the adaptable  - with nary a 
trickle down effect. 
Some scholars envision a plutocracy superimposed on a post-
industrial proletariat . Dysfunctional families and 
disintegrating communities will prove inadequate in the 
face of growing racial tensions and crime. Ironically, this 
dystopian future may well be the inevitable outcome of this 
most utopian period - the present.




END OF THE LABOR DIVIDE BY SAM VAKNIN