Europeans Are Becoming Poorer. ‘Yes, We’re All Worse Off.’
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Europeans Are Becoming Poorer. ‘Yes, We’re All Worse Off.’

An ageing population that values its free time set the stage for economic stagnation. Then came Covid-19 and Russia’s war in Ukraine.

By TOM FAIRLESS
Tue, Jul 18, 2023 8:26amGrey Clock 8 min

Europeans are facing a new economic reality, one they haven’t experienced in decades. They are becoming poorer.

Life on a continent long envied by outsiders for its art de vivre is rapidly losing its shine as Europeans see their purchasing power melt away.

The French are eating less foie gras and drinking less red wine. Spaniards are stinting on olive oil. Finns are being urged to use saunas on windy days when energy is less expensive. Across Germany, meat and milk consumption has fallen to the lowest level in three decades and the once-booming market for organic food has tanked. Italy’s economic development minister, Adolfo Urso, convened a crisis meeting in May over prices for pasta, the country’s favourite staple, after they jumped by more than double the national inflation rate.

With consumption spending in free fall, Europe tipped into recession at the start of the year, reinforcing a sense of relative economic, political and military decline that kicked in at the start of the century.

Europe’s current predicament has been long in the making. An ageing population with a preference for free time and job security over earnings ushered in years of lacklustre economic and productivity growth. Then came the one-two punch of the Covid-19 pandemic and Russia’s protracted war in Ukraine. By upending global supply chains and sending the prices of energy and food rocketing, the crises aggravated ailments that had been festering for decades.

Governments’ responses only compounded the problem. To preserve jobs, they steered their subsidies primarily to employers, leaving consumers without a cash cushion when the price shock came. Americans, by contrast, benefited from inexpensive energy and government aid directed primarily at citizens to keep them spending.

In the past, the continent’s formidable export industry might have come to the rescue. But a sluggish recovery in China, a critical market for Europe, is undermining that growth pillar. High energy costs and rampant inflation at a level not seen since the 1970s are dulling manufacturers’ price advantage in international markets and smashing the continent’s once-harmonious labor relations. As global trade cools, Europe’s heavy reliance on exports—which account for about 50% of eurozone GDP versus 10% for the U.S.—is becoming a weakness.

Private consumption has declined by about 1% in the 20-nation eurozone since the end of 2019 after adjusting for inflation, according to the Organization for Economic Cooperation and Development, a Paris-based club of mainly wealthy countries. In the U.S., where households enjoy a strong labor market and rising incomes, it has increased by nearly 9%. The European Union now accounts for about 18% of all global consumption spending, compared with 28% for America. Fifteen years ago, the EU and the U.S. each represented about a quarter of that total.

Adjusted for inflation and purchasing power, wages have declined by about 3% since 2019 in Germany, by 3.5% in Italy and Spain and by 6% in Greece. Real wages in the U.S. have increased by about 6% over the same period, according to OECD data.

The pain reaches far into the middle classes. In Brussels, one of Europe’s richest cities, teachers and nurses stood in line on a recent evening to collect half-price groceries from the back of a truck. The vendor, Happy Hours Market, collects food close to its expiration date from supermarkets and advertises it through an app. Customers can order in the early afternoon and collect their cut-price groceries in the evening.

“Some customers tell me, because of you I can eat meat two or three times per week,” said Pierre van Hede, who was handing out crates of groceries.

Karim Bouazza, a 33-year-old nurse who was stocking up on half-price meat and fish for his wife and two children, complained that inflation means “you almost need to work a second job to pay for everything.”

Similar services have sprung up across the region, marketing themselves as a way to reduce food waste as well as save money. TooGoodToGo, a company founded in Denmark in 2015 that sells leftover food from retailers and restaurants, has 76 million registered users across Europe, roughly three times the number at the end of 2020. In Germany, Sirplus, a startup created in 2017, offers “rescued” food, including products past their sell-by date, on its online store. So does Motatos, created in Sweden in 2014 and now present in Finland, Germany, Denmark and the U.K.

Spending on high-end groceries has collapsed. Germans consumed 52 kilograms of meat per person in 2022, about 8% less than the previous year and the lowest level since calculations began in 1989. While some of that reflects societal concerns about healthy eating and animal welfare, experts say the trend has been accelerated by meat prices which increased by up to 30% in recent months. Germans are also swapping meats such as beef and veal for less-expensive ones such as poultry, according to the Federal Information Center for Agriculture.

Thomas Wolff, an organic-food supplier near Frankfurt, said his sales fell by up to 30% last year as inflation surged. Wolff said he had hired 33 people earlier in the pandemic to handle strong demand for pricey ecological foodstuffs, but he has since let them all go.

Ronja Ebeling, a 26-year-old consultant and author based in Hamburg, said she saves about one-quarter of her income, partly because she worries about having enough money for retirement. She spends little on clothes or makeup and shares a car with her partner’s father.

Weak spending and poor demographic prospects are making Europe less attractive for businesses ranging from consumer-goods giant Procter & Gamble to luxury empire LVMH, which are making an ever-larger share of their sales in North America.

“The U.S. consumer is more resilient than in Europe,” Unilever’s chief financial officer, Graeme Pitkethly, said in April.

The eurozone economy grew about 6% over the past 15 years, measured in dollars, compared with 82% for the U.S., according to International Monetary Fund data. That has left the average EU country poorer per head than every U.S. state except Idaho and Mississippi, according to a report this month by the European Centre for International Political Economy, a Brussels-based independent think tank. If the current trend continues, by 2035 the gap between economic output per capita in the U.S. and EU will be as large as that between Japan and Ecuador today, the report said.

On the Mediterranean island of Mallorca, businesses are lobbying for more flights to the U.S. to increase the number of free-spending American tourists, said Maria Frontera, president of the Mallorca Chamber of Commerce’s tourism commission. Americans spend about €260 ($292) per day on average on hotels compared with less than €180 ($202) for Europeans.

“This year we have seen a big change in the behaviour of Europeans because of the economic situation we are dealing with,” said Frontera, who recently traveled to Miami to learn how to better cater to American customers.

Weak growth and rising interest rates are straining Europe’s generous welfare states, which provide popular healthcare services and pensions. European governments find the old recipes for fixing the problem are either becoming unaffordable or have stopped working. Three-quarters of a trillion euros in subsidies, tax breaks and other forms of relief have gone to consumers and businesses to offset higher energy costs—something economists say is now itself fuelling inflation, defeating the subsidies’ purpose.

Public-spending cuts after the global financial crisis starved Europe’s state-funded healthcare systems, especially the U.K.’s National Health Service.

Vivek Trivedi, a 31-year-old anaesthesiologist living in Manchester, England, earns about £51,000 ($67,000) per year for a 48-hour workweek. Inflation, which has been about 10% or higher in the U.K. for nearly a year, is devouring his monthly budget, he says. Trivedi said he shops for groceries in discount retailers and spends less on meals out. Some colleagues turned off their heating entirely over recent months, worried they wouldn’t be able to afford sharply higher costs, he said.

Noa Cohen, a 28-year old public-affairs specialist in London, says she could quadruple her salary in the same job by leveraging her U.S. passport to move across the Atlantic. Cohen recently got a 10% pay raise after switching jobs, but the increase was completely swallowed by inflation. She says friends are freezing their eggs because they can’t afford children anytime soon, in the hope that they have enough money in future.

“It feels like a perma-freeze in living standards,” she said.

Huw Pill, the Bank of England’s chief economist, warned U.K. citizens in April that they need to accept that they are poorer and stop pushing for higher wages. “Yes, we’re all worse off,” he said, saying that seeking to offset rising prices with higher wages would only fuel more inflation.

With European governments needing to increase defence spending and given rising borrowing costs, economists expect taxes to increase, adding pressure on consumers. Taxes in Europe are already high relative to those in other wealthy countries, equivalent to around 40-45% of GDP compared with 27% in the U.S. American workers take home almost three-quarters of their pay checks, including income taxes and Social Security taxes, while French and German workers keep just half.

The pauperisation of Europe has bolstered the ranks of labor unions, which are picking up tens of thousands of members across the continent, reversing a decades long decline.

Higher unionisation may not translate into fuller pockets for members. That’s because many are pushing workers’ preference for more free time over higher pay, even in a world of spiralling skills shortages.

IG Metall, Germany’s biggest trade union, is calling for a four-day work week at current salary levels rather than a pay raise for the country’s metalworkers ahead of collective bargaining negotiations this November. Officials say the shorter week would improve workers’ health and quality of life while at the same time making the industry more attractive to younger workers.

Almost half of employees in Germany’s health industry choose to work around 30 hours per week rather than full time, reflecting tough working conditions, said Frank Werneke, chairman of the country’s United Services Trade Union, which has added about 110,000 new members in recent months, the biggest increase in 22 years.

Kristian Kallio, a games developer in northern Finland, recently decided to reduce his working week by one-fifth to 30 hours in exchange for a 10% pay cut. He now makes about €2,500 per month. “Who wouldn’t want to work shorter hours?” Kallio said. About one-third of his colleagues took the same deal, although leaders work full-time, said Kallio’s boss, Jaakko Kylmäoja.

Kallio now works from 10 a.m. to 4.30 p.m. He uses his extra free time for hobbies, to make good food and take long bike rides. “I don’t see a reality where I would go back to normal working hours,” he said.

Igor Chaykovskiy, a 34-year-old IT worker in Paris, joined a trade union earlier this year to press for better pay and conditions. He recently received a 3.5% pay increase, about half the level of inflation. He thinks the union will give workers greater leverage to press managers. Still, it isn’t just about pay. “Maybe they say you don’t have an increase in salary, you have free sports lessons or music lessons,” he said.

Mathias Senn, right, a butcher in Germany’s wealthy Black Forest region, couldn’t find local applicants to replace four workers who are preparing to retire, so he hired an apprentice from India, Rajakumar Bheemappa Lamani. PHOTO: DOMINIC NAHR FOR THE WALL STREET JOURNAL

At the Stellantis auto factory in Melfi, southern Italy, employees have worked shorter hours for years recently due to the difficulty of procuring raw materials and high energy costs, said Marco Lomio, a trade unionist with the Italian Union of Metalworkers. Hours worked have recently been reduced by around 30% and wages decreased proportionally.

“Between high inflation and rising energy costs for workers,” said Lomio, “it is difficult to bear all family expenses.”



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The Loneliness of the American Worker

More meetings and faceless chats. Fewer work friends. How the modern workday is fueling an epidemic of isolation.

By TE-PING CHEN
Wed, May 29, 2024 6 min

More Americans are profoundly lonely, and the way they work—more digitally linked but less personally connected—is deepening that sense of isolation.

Nick Skarda , 29 years old, works two jobs in logistics and office administration in San Diego to keep up with his bills. After a couple of years at the logistics job, he has one friend there. He says hi to co-workers at his office job but doesn’t really know any.

“I feel sort of an emptiness or lack of belonging,” he says. Juggling two jobs leaves Skarda exhausted, with little energy or time to grab drinks with co-workers . “It makes it harder to go in and give it your all if you don’t feel like anyone is there rooting for you,” he adds.

Employers and researchers are just beginning to understand how workplace shifts over the past four years are contributing to what the U.S. surgeon general declared a loneliness health epidemic last year. The alienation affects remote and in-person workers alike. Among 1-800-Flowers.com ’s 5,000 hybrid and fully on-site employees, for instance, the most popular community chat group offered by a company mental-health provider is simply called “Loneliness.”

Consider these phenomena of modern work:

It is a marked shift from even a decade ago, when bonds fostered at work helped compensate for declining participation in church , community groups and other social institutions. As the American workday becomes more faceless and scheduled , the number of U.S. adults who call themselves lonely has climbed to 58% from 46% in 2018, according to a recent Cigna poll of 10,000 Americans.

The faceless workday

The disconnection is driving up staff turnover and worker absences, making it a business issue for more employers, executives and researchers say. Cigna, the health-insurance company, estimates that loneliness is costing companies $154 billion a year in absenteeism alone.

“Work is social, it’s a lot more than a paycheck,” says James McCann , founder and chairman of 1-800-Flowers.com.

Earlier this year, 1-800-Flowers.com moved from three days in the office to four to boost a sense of connectivity among workers. It has also begun tapping workers across teams to serve as designated hosts during lunchtime, encouraging people to sit with colleagues they don’t know in common areas and chat, and suggesting conversation topics.

While today’s workers have more ways to connect than ever, “there are only so many memes and jokes you can send over Slack,” says Maëlle Gavet , chief executive of Techstars, a pre-seed fund that has invested in 4,100 startups. “We tend to have more and more people with back-to-back calendars, more meetings and less connections.”

Gavet says that is especially the case for hybrid workers on in-office days, which they tend to use to dash from one meeting to the next.

Paradoxically, meetings can make people feel lonelier—and even more so if the meetings are virtual, behavioural researchers say. A 2023 survey by employee experience and analytics company Perceptyx found people who described themselves as “very lonely” tended to have heavier meeting loads than less-lonely staffers. More than 40% of those people spent more than half their work hours in meetings.

In Cincinnati, Kelly Roehm says she came to chafe at the meetings—sometimes as many as 12—consuming her day after joining a consulting company in 2021. She would often feel her eyes glazing over as she multitasked on other screens.

“It’s like you’re a zombie, there but not there,” says Roehm, who lived 10 minutes from the office but worked mostly remotely because she says few colleagues typically came in. It is a more common setup as companies distribute teams across more locations: At Microsoft , 27% of the company’s teams all worked in the same location last year, compared with 61% in 2019.

She compares that experience with her time more than a decade ago at a company now owned by AstraZeneca . There, she enjoyed lots of social outlets at work: a Weight Watchers group and a lunchtime crochet club.

“Now if I were to think about asking, ‘Hey, do you want to participate in something like this,’ it would just sound weird,” says Roehm, who left this year to focus on her own career-consulting business. “There wasn’t that emotional attachment that made it difficult to say, it’s time to move on.”

The power of small talk

Office chitchat, sometimes an unwanted distraction, seems to provide more benefits than many people realise, says Jessica Methot , an associate professor at Rutgers University who studies social ties at work.

In a study of 100 employees at different workplaces, Methot and fellow researchers surveyed participants at points throughout the day. They found those who had engaged in small talk reported less stress and more positivity toward co-workers.

Even exchanging pleasantries with a co-worker you barely know can help, says Sarah Wright , an associate professor at New Zealand’s University of Canterbury who studies worker loneliness.

“We used to think loneliness has to be overcome by developing meaningful relationships and having that degree of intimacy,” Wright says. “More and more, though, we’re seeing it’s these day-to-day weak ties and frequency of [interactions] with people that matters.”

Such interactions are substantially harder to replicate in a virtual environment. “The default now is, I have to schedule time with you, even if it’s five minutes, instead of just picking up the phone,” says Katie Tyson , president of Hive Brands, an online food retailer founded in 2020 as a fully remote company.

The frictions add up, she says. Last fall, the company added an office in New York where employees voluntarily gather a couple of times a week to foster more cohesion.

Coming to the office, even on a hybrid basis, tends to yield a roughly 20% to 30% boost in serendipitous connections, according to Syndezo, which analysed survey data and email and messaging traffic from more than two dozen large companies.

Yet there are diminishing returns to time in person, says Philip Arkcoll , founder of Worklytics, which analyses workforce data for Fortune 500 companies. Coming in once a month provides a significant boost in ties; two or three times a month adds a little more, Worklytics data show. Once or twice a week results in a smaller increase, though, and working in-person four or five days a week makes almost no difference.

A business priority

Ernst & Young has asked managers to use the first five minutes of team calls to engage in conversation “as real human beings,” says Frank Giampietro , whose title, chief well-being officer for the Americas, was created in 2021 to help support employees during the pandemic.

The professional-services firm is also training employees to spot and reach out to co-workers struggling with issues such as isolation. To date, more than 1,600 employees have taken the training.

One challenge is that American workers have sacrificed connection for productivity, says Julie Rice , co-founder of fitness chain SoulCycle. These days, with more business contacts preferring video calls, she finds breakfast meetings and coffee dates on her calendar have been replaced with Zoom. Though efficient, such video calls are less likely to yield conversations that can turn into useful professional connections or lasting friendships, she says.

Julie Rice says that her work schedule, once packed with coffees and in-person meetups, is now an avalanche of Zooms. PHOTO: CHRISTOPHER GREGORY-RIVERA FOR THE WALL STREET JOURNAL

“Even people I’m meeting with here in New York, we’ll just Zoom,” she says.

Last year, Rice co-founded Peoplehood, a company that runs “gathers” to improve connectivity and relationship skills, and employers are signing up. One, a beauty-services business with hundreds of field employees who never see each other, asked Peoplehood to host a series of gatherings for workers to meet and share job advice. Another, a marketing company with far-flung employees, requested help after surveys showed staff wanted to feel more connected.

“Whatever relationships we had pre-Covid have sort of run out of gas,” Rice says.

Good luck prodding employees to socialise, though. Nearly all the 150-odd staff at the Pleasanton, Calif., headquarters of Shaklee, the nutrition-supplements company, used to attend annual Earth Day gatherings, which involved community service, lunch and breaking early for the day, says Jonathan Ramot , the company’s North American human-resources director. Office happy hours, bowling outings and “mix and mingles” were also robustly attended.

Now that the workforce has gone remote, last year’s Earth Day event attracted 20 staffers, even though most workers live nearby.

“We have a lot of people asking for in-person events, but when we plan them, they don’t show up,” Ramot says. “Then they complain they’re lonely.”

This past April, Shaklee instead held a mandatory get-together with the chief executive, who had relocated to Florida during the pandemic and was in town. About 100 employees gathered at a brewery for food, drinks and conversation—and no speeches from the bosses.

There was a buzz in the air, Ramot says, as staff hugged and delighted in seeing each other, some for the first time. “People were saying, I miss this,” he says.

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