Last week’s Eurostat press statement on unemployment is devastating. In December 2012, unemployment stood at 11.7% in the Euro area and 10.7% in the EU-27. In both areas, unemployment was is significantly up from December 2011.In the whole of Europe, 25.9 million people are unemployed of which 5.7 million are youngsters. Greece and Spain, recording unemployment rates higher than 26%, are worst hit. While unemployment has fallen in 7 member states (amongst these the three Baltics), it has increased in 20 member states over the past year.
Unfortunately, these unemployment statistics do not show the full picture. Behind these official statistics is hiding a trend of unemployed becoming so unmotivated that they withdraw from the labour market altogether, thereby artificially depressing the unemployment numbers. Another category that is missed by these statistics are workers leaving their home countries to look for a job elsewhere, a phenomenon that is massively at work in many of the peripheral member states.
Moreover, even if employment statistics are used so as to factor in the above mentioned effects, jobs figures can also be quite misleading. Aggregate job numbers do not say anything about the type of jobs that are being created. A closer look at what has been happening with employment since the start of the economic crisis is quite revealing (see graph below).
The graph first of all (see the dotted lines near the zero axis) shows that, even four years after the crisis, GDP has not fully recovered and is still some 2% below the level of economic activity of the third quarter 2008 and since 2011Q4 regressing once again.
Jobs suffer as a consequence. It’s not just that the total number of jobs is going down, for example by 500.000 from the third quarter 2011 to the third quarter of 2012. It’s also that the composition of the existing jobs is changing quite a lot as evidenced by the graph. The jobs that are being created since the start of the crisis are mainly part- time jobs and their number has increased by 8% since then (see the dotted lines in the top half of the graph). Full time jobs on the other hand have suffered substantially and their number has fallen by 6% (see the full lines in the bottom half of the graph) and they are continuing to fall.
Shifting the focus from the overall European average to the most distressed countries yields an even more extreme picture (see next graph). In Spain, Ireland and Greece, around 15 to 20% (this is one fifth!) of full time jobs have simply disappeared! At the same time, part time job dynamics have recorded a compounded rate of growth of 10 to 15%.
To conclude, the European economy is experiencing an acute aggregate demand crisis and this situation is feeding upon itself. The crisis, initially triggered by a credit squeeze and then by a fiscal austerity squeeze, has worked to devastate our labour markets. Unemployment rates as high as 11% and more, together with ongoing wage moderation and in combination with a process by which full time jobs are being scrapped and displaced by part time jobs are amplifying the crisis even further. Moreover, it is full-time, not part-time, jobs that pay mortgages. Rising loan defaults puts banks in even deeper trouble, requiring even higher bail-outs from public funds.
This perverse interaction between economic crisis on the one hand and job destruction on the other hand needs to be broken. Europe needs to relaunch its economy and launch a major European investment program. In that way, the vicious pass through coming from overall job destruction, degrading jobs quality and wage squeeze into a further weakening aggregate demand dynamics could be stopped.