Europe Employment at 87.8% and a Road out of Eurozone Crisis
Almost all the analysis of the unemployment situation in the euro area focused on the record jobless rate of 12.2%. Nothing was said about the 87.8% employment rate. The very large portion of people who are employed, where they are employed and in what jobs may be a clue to how Europe might pull itself from an economic tailspin.
Eurostat, the EU’s research arm, estimates that 26.588 million men and women in the EU27 were out of work in April. As anyone would expect:
Among the Member States, the lowest unemployment rates were recorded in Austria (4.9%), Germany (5.4%) and Luxembourg (5.6%), and the highest in Greece (27.0% in February 2013), Spain (26.8%) and Portugal (17.8%).
Austria’s economy might as well be counted with Germany’s. Its manufacturing and services sector are fundamentally an extension of the same businesses in the region’s largest economy by gross domestic product (GDP).
In the worst-off economies, service sector jobs make up most of those in Spain and Portugal, two which might as well be tied together by geography and economic conditions. Spain’s unemployment rate was as low as 8% in 2007, which is high by U.S. standards but reasonable by the standards of Spain. Each country’s cost of labor was too high, compared with less-developed nations in the region. Tourist activity was obliterated by the recession. Booming real estate markets, not unlike those in the United States, bolstered the wealth of the middle class and was entirely wiped out by collapses in value and defaults. The cycle was like America’s in that it was hard to tell whether real estate values hurt employment or visa versa.
Unfortunately, the way out of the dilemmas in Spain, Portugal and Greece may be the creation of labor forces with many fewer benefits than those the governments have mandated in the past. Lower wages are probably the only way to make the workforce efficient enough economically to draw business to the countries. Not unlike America, the new jobs market will be less stable and will come with fewer benefits. With those things, the individual tax base will erode government finances, which may be a path to greater austerity. That is, unless the European Union, International Monetary Fund and European Central Bank are willing to turn some of their efforts to stimulus.
It will take a combination of stimulus and economies that attract jobs because of wages lower than has been the case historically. Lower cost labor has become part of the American economy and continues to be the bedrock of the most rapidly growing economies in the world. To add jobs, Spain, Portugal and Greece will need to move to a model that offers workers few of the benefits or high wages they had in the past, but at least more people will have work.