Europe's Labor

When he was German Minister of Economics, Wolfgang Clement was known as a reformer within the center-left Social Democratic Party who tried to loosen the nation's rigid labor regulations. He took heat from all sides: from business groups complaining the reforms were too tepid and from the left wing of his own party, who saw him as a traitor to the labor movement.

Now, a year and a half after voters pushed Clement's party from the Chancellor's office, his reforms seem to be bearing fruit. German unemployment, the nation's most stubborn economic weakness since reunification, is falling dramatically. In March, the unemployment rate was 9.8% vs. 12% a year earlier, with 870,000 fewer jobless people. Germany is also driving a Europe-wide jobless decline, to 7.2% in February vs. 8.3% a year earlier.

Buried inside the statistics, though, is a surprising development in the famously rigid European labor market: Hundreds of thousands of new jobs are being filled with temporary workers supplied by staffing agencies such as Zurich-based Adecco (ADO), Amsterdam-based Randstad, and Milwaukee-based Manpower (MAN).

Taking Credit

Unlike many of their U.S. counterparts, most temporary and contract workers in Europe still receive benefits such as health-care and retirement coverage. But because they're easier to hire and fire, these workers pose less financial risk to employers. That's encouraging companies to add workers—and helping make Continental economies more dynamic.

Of course, the strong world economy gets some of the credit for European job growth. But Germany's Clement argues that reforms pushed through by the SPD government under Chancellor Gerhard Schröder are playing a role. "When I'm 100, I'll be proud of this," Clement told BusinessWeek in an interview in Frankfurt.

It's only fitting that the architect of many of those reforms is now attacking unemployment in a new forum. Clement, who left politics in 2005 after his party was defeated by Angela Merkel's center-right Christian Democrats, is chairman of the Adecco Institute, a newly formed think tank sponsored by the employment services company of the same name.

Europe-Wide Trend

Clement and others are now bringing to light the fact that temporary agencies are responsible for a disproportionate share of new jobs in Europe—especially those that go to unemployed people. In Germany, so-called company-oriented services—a category dominated by staffing firms—accounted for an increase of 273,000 jobs in March compared to a year earlier, according to the Federal Labor Agency. No other industry created as many positions.

Indeed, the growth in temporary work is a Europe-wide trend, accounting for 14.5% of the labor force in 2005, the most recent figures available, vs. 12.6% in 2000. Even more telling is that more than half of the temporary workers in Europe are people who were previously unemployed. Staffing agencies, in other words, are serving as a way for many people to re-enter the labor market.

It's easy to see why so many employers are tapping staffing agencies for new workers. In most European countries, it's difficult and costly to lay off permanent workers when staffing needs change or times are tough. Temp agencies increasingly are providing the labor flexibility that the European economy has chronically lacked. "Many companies say labor regulations are still too rigid. They start off with hiring people on a temporary base via agencies," says Gregor Eder, head of industrial countries research at Dresdner Bank in Frankfurt.

When he was German Minister of Economics, Wolfgang Clement was known as a reformer within the center-left Social Democratic Party who tried to loosen the nation's rigid labor regulations. He took heat from all sides: from business groups complaining the reforms were too tepid and from the left wing of his own party, who saw him as a traitor to the labor movement.

Now, a year and a half after voters pushed Clement's party from the Chancellor's office, his reforms seem to be bearing fruit. German unemployment, the nation's most stubborn economic weakness since reunification, is falling dramatically. In March, the unemployment rate was 9.8% vs. 12% a year earlier, with 870,000 fewer jobless people. Germany is also driving a Europe-wide jobless decline, to 7.2% in February vs. 8.3% a year earlier.

Buried inside the statistics, though, is a surprising development in the famously rigid European labor market: Hundreds of thousands of new jobs are being filled with temporary workers supplied by staffing agencies such as Zurich-based Adecco (ADO), Amsterdam-based Randstad, and Milwaukee-based Manpower (MAN).

Taking Credit

Unlike many of their U.S. counterparts, most temporary and contract workers in Europe still receive benefits such as health-care and retirement coverage. But because they're easier to hire and fire, these workers pose less financial risk to employers. That's encouraging companies to add workers—and helping make Continental economies more dynamic.

Of course, the strong world economy gets some of the credit for European job growth. But Germany's Clement argues that reforms pushed through by the SPD government under Chancellor Gerhard Schröder are playing a role. "When I'm 100, I'll be proud of this," Clement told BusinessWeek in an interview in Frankfurt.

It's only fitting that the architect of many of those reforms is now attacking unemployment in a new forum. Clement, who left politics in 2005 after his party was defeated by Angela Merkel's center-right Christian Democrats, is chairman of the Adecco Institute, a newly formed think tank sponsored by the employment services company of the same name.

Europe-Wide Trend

Clement and others are now bringing to light the fact that temporary agencies are responsible for a disproportionate share of new jobs in Europe—especially those that go to unemployed people. In Germany, so-called company-oriented services—a category dominated by staffing firms—accounted for an increase of 273,000 jobs in March compared to a year earlier, according to the Federal Labor Agency. No other industry created as many positions.

Indeed, the growth in temporary work is a Europe-wide trend, accounting for 14.5% of the labor force in 2005, the most recent figures available, vs. 12.6% in 2000. Even more telling is that more than half of the temporary workers in Europe are people who were previously unemployed. Staffing agencies, in other words, are serving as a way for many people to re-enter the labor market.

It's easy to see why so many employers are tapping staffing agencies for new workers. In most European countries, it's difficult and costly to lay off permanent workers when staffing needs change or times are tough. Temp agencies increasingly are providing the labor flexibility that the European economy has chronically lacked. "Many companies say labor regulations are still too rigid. They start off with hiring people on a temporary base via agencies," says Gregor Eder, head of industrial countries research at Dresdner Bank in Frankfurt.