HIGH BELGIAN UNEMPLOYMENT PERSISTS

UNCLAS SECTION 01 OF 02 BRUSSELS 003836

SIPDIS

SIPDIS

STATE FOR AF/S, EB/ESC AND EUR/UBI
USDOC FOR 3133/USFCS/OIO/EUR
TREASURY FOR OASIA - ATUKORALA
PARIS FOR USOECD - BARLERIN

E.O. 12958: N/A
TAGS: ECON ELAB BE
SUBJECT: HIGH BELGIAN UNEMPLOYMENT PERSISTS



1. (U) Summary. Belgian unemployment remains high on average
by national standards, 8.6 percent, and rose in the past year
despite good EU and global economic growth rates. The
French-speaking regions of Wallonia and Brussels register
over 19 and 21 percent unemployment respectively, reflecting
a working age population lacking skills sought by employers.
Improving educational standards and worker re-training
programs, and possibly rethinking Belgium,s generous
unemployment benefits, will be essential in addressing the
country,s entrenched unemployment problem. End Summary.


2. (U) Despite stronger than expected GDP growth rates in
2005 (2.4 percent) and 2006 (2.7 percent forecast),Belgian
unemployment moved slightly higher in October, registering
8.6 percent, up 0.6 percent from a year earlier. Although
Belgium,s highly trade-dependent economy has been more
resilient and performed better than its key markets of
Germany and France in recent years, serious job growth never
followed. This troubles Belgian analysts, and underscores
persisting structural problems; forecasts for Belgium in 2007
foresee the economy slowing to 2.2 percent growth, implying
further challenges to employment growth.


3. (U) Broken out regionally, the unemployment situation is
even more striking. In Flanders and the dynamic Antwerp port
region, unemployment is under the national average. Strong
profits in the petroleum, chemicals and refining sector, as
well as active foreign investment in bio-pharmaceuticals and
other new technologies, coupled to high productivity levels,
account for stronger demand for workers. In Wallonia,
conversely, unemployment reached a record of almost 290,000
people, 19.4 percent of the working age population. In the
past twenty years, Walloon unemployment has never dropped
below 17 percent.


4. (U) The Walloon Enterprise Federation blames this weak
performance ) despite a favorable national and global
economic climate ) on weak skills. Nearly half of the
Walloon unemployed have not completed secondary school
education. Professional and vocational training programs
have been weak, job losses in old industries such as steel
have not been counterbalanced by new investments. The
Walloon &Marshall Plan8 that Walloon authorities started a
year ago aims to attract new high tech industries with growth
potential. It has registered some successes, but these
sectors tend to engage fewer, more highly skilled and younger
employees, rather than soaking up the workers who have lost
their positions through regional closures have generated.
The Marshall Plan has yet to inspire confidence: in a poll
in September only 20 percent of Walloon CEO surveyed had
confidence the Plan would succeed.


5. (U) In terms of attracting foreign investors, Wallonia is
challenged linguistically: while 75% of Flemish students
claim to speak English, only 30% of Walloon students claim to
do so. This is a serious drawback, given the ubiquity of
English as a global commercial language. In addition, there
is a gap in critical math and science skills. The OECD,s
2003 PISA study showed Flemish students, scores exceeded
those of top-rated Finland, but their Walloon counterparts,
scores were scarcely average.


6. (U) Finally, Wallonia struggles not only with its regional
problems, but labors under the federal context of very high
worker social program contributions governed by national law.
The standing tax rates and entitlements impose a cost on the
employer equal to over two-thirds of the worker,s base
salary. Restrictive labor laws making weekend and off-hours
either very expensive or prohibited altogether are another
burden for investors. Given the attractions of flat-tax
havens elsewhere in the EU and low wage rates in Eastern
Europe, Belgium,s competitiveness on labor issues is
relatively poor. The generous national unemployment
structure also gives little incentive to the jobless to seek
positions, as entry-level jobs may pay little more than
unemployment benefits. To be fair, the government has
recently announced incentive programs to reduce some of these
costs.


7. (U) The Brussels capital region suffers even greater
unemployment than Wallonia, 21.2 percent, which is actually a
drop of 0.6 percent from a year earlier. The reasons it
remains high in Brussels are partly demographic: a
concentrated immigrant population, often from North Africa or
Turkey, lacking language and other skills, may not match the
demand posed by employers. Although Brussels is in the

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middle of a construction boom, building companies have been
engaging workers from other EU countries to fill their needs;
6,800 Poles were registered in Belgium during the past five
months under the new EU labor migration rules, most of them
to work in the construction sector.


8. (U) Belgium overall, and Brussels in particular, stands to
lose jobs in the automobile industry, as that sector faces
cuts and relocations due to global competition. In early
November Volkswagen announced its plant in suburban Brussels
may shed 1,000 positions in the next year, and Opel, Ford,
and Volvo factories in Flanders may be trimming their labor
needs given global restructuring.


9. (U) Regional differences in trade union militancy are
another factor limiting competitiveness in the
French-speaking areas. Wallonia,s ruling political party,
the francophone Socialist (PS) is unlikely to press workers
to accommodate employers, federation demands. Despite the
tradition of tripartite talks ) union, employers,
federation, and the government mediating ) Walloon business
leaders reveal low confidence in the government role; 59
percent of them called the PS an obstacle to economic revival
in the region.

Korologos
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