Unemployment
Europe, like the United States, is in a period of economic prosperity that has resulted in higher levels of employment in a number of regions. There are, however, great differences in country and region unemployment rates.

Overall, EU unemployment is 9.6 percent, but in Eastern Europe, the rate exceeds 20 percent.

In some of the most prosperous of European regions, unemployment has dropped to between 2 and 4 percent. Ireland is one country that has seen its national unemployment rate dip to 7 percent. In the Netherlands as a whole, the unemployment rate is below 4 percent.

As in the U.S., this labor market "tightness" is beginning to have an impact on business costs, pushing up wages and making employee attraction far more difficult than previously.

Making the equation more difficult is Europe's long-term or structural unemployment, of which some 40 percent or more of the unemployed have been without a job for over a year.

A company seeking to invest in Europe may need to take a pro-active approach in hiring and retention, depending upon location choice.

Labor costs
The labor cost differentials across Europe are no secret. The U.S. Bureau of Labor Statistics publishes average manufacturing hourly wage rates. The data demonstrates the wide variation in compensation throughout Europe from Germany, where average manufacturing wages are highest, to Portugal, where compensation is nearly one sixth that of Germany.

Balancing this is the availability of skill sets and the productivity of the work force. Though countries like Switzerland and Luxembourg are renowned for being productive, Eastern European countries and Ireland have made great strides in productivity growth.

Not unlike the U.S., there is a premium on workers with high-technology skills in Europe. Companies can begin to expect to pay higher starting salaries and sign-on bonuses for such employees, following the U.S. example.

Benefits
Companies can also expect to provide a greater employee benefits package in Europe, as compared to packages in the U.S. The social nature of many European governments has ensured a strong safety net for its citizens which, in turn, business and the citizenry must support through payroll taxes.

For example, employer-paid benefits represent an average of 20 to 30 percent of base salary in the U.S., whereas in Europe benefits can average between 20-50 percent.

In certain industries and countries the employer could be responsible for benefit costs as high as 90 percent of base salary.

Also, in a number of European countries, executive levels will command company-provided benefits including cars and mobile telephones.

Labor Flexibility
U.S. companies will find less labor flexibility in Europe with respect to hiring and firing regulations. European countries have legislated limits to overtime and night and weekend work.

There are mandatory procedures for dismissal, resignation and layoffs. These can be further modified by collective agreements and individual labor contracts. One example of recent government regulation is the introduction of the 35-hour workweek in France to combat unemployment.

A trend countering this type of legislation is the growth in temporary work force, job sharing and part-time work. The Netherlands and the UK, in particular, have high incidences of part-time and temporary work, which afford employers more flexibility in staffing.

U.S. companies can expect a higher level of trained candidates to come from the "temp" ranks, where university-degreed professionals are not uncommonly sourced.

International executives
For U.S. executives in Europe, resources to support them and families are quite well developed. Organizations such as the American Chamber of Commerce provide a forum and linkage between U.S. and European business.

A wealth of international schools exists in many metropolitan areas. Special expatriate tax legislation may also be available to mitigate the effect of higher European personal taxation. The Netherlands is one example with its 35 percent ruling that reduces the personal tax rate of company executives who have special expertise.

The last word
In addition, U.S. companies would be well advised to examine the following issues in detail when seeking to hire staff in Europe:

• The costs of severance and dismissal (in both time and money);
• The participation of works councils and unions in management decisions;
• The number of paid holidays and amount of annual leave.

Assumptions on European labor matters can lead to costly errors. Careful research and consideration of the differences between U.S. and European labor issues is highly recommended to ensure smooth implementation of an entry strategy.

Richard K. Greene is a senior manager in the International Location Advisory Service group of Ernst & Young Consulting. He can be contacted at (212) 773-6555.