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Broad unemployment in Europe: new data confirm disasterous situation

The new broad unemployment data for the EU underscore the severity of the employment situation in the EU. Since 2008, levels have increased almost everywhere. And even where the labour market situation has improved (notably the UK and Germany) the data show that there still is considerable slack.

Just the other day Paul Krugman reminded us, with a neat graph, that economic statisticians developed the ‘broad unemployment’ concept and metrics with a reason: they enhance our insight in the nature as well as the causes of unemployment and the present situation. Recently, Eurostat has started to organize and publish these data for Europe. See also here and here.  ‘Broad unemployment’ consists of three categories: Underemployed part-time workers, Persons seeking work but not immediately available (i.e. not within two weeks) and People available but not seeking. I’ve looked at the change between 2008 and 2013. Countries with less than 1.000.000 inhabitants are excluded (except Cyprus), for some other countries (including, temporarily, France) no data are available. As Ronald Dekker reminded me that in some countries, like  Latvia, sample sizes are quite small I’ve looked at a two quarter average when calculating changes.

1. ‘Discouraged workers’

Discouraged1

The category ‘available but not seeking’ is the most important category and also the category with the largest differences between countries. Levels have increased almost everywhere. There seem to be some kind of trade-off with other categories. Italy scores extremely high on this metric but quite low on the others, the same holds to a lesser extent for some other countries. Hihgly intersting, levels tend to be quite high in a number of southern and eastern European countries. Exception: Greece! Austerity policies aimed at getting rid of ‘rigidities’ on labour markets should, if they indeed had been succesful, led to less discouraged workers. Predictably, the opposite happened: high unemployment still is the largest rigidity of them all.

2. Underemployed part-time workers (note: for the sake of comparison all graphs have the same scale).

On this blog, Paul Davidson stated in a comment on an article by Dean Baker: ‘Work sharing is nonsense — it is merely to get your unemployment statistic from looking bad and sharing unemployment with other workers who would otherwise be fully employed! Why force leisure on workers who prefer to work and earn more income?’. Though I think that, in the short run (but not in the long run), involuntary work sharing can be extremely useful for workers and companies alike, the concept behind this statistic is consistent with the idea of Davidson: unemployment is unemployment. And it turns out that countries like Germany, Belgium and the UK, which have unemployment statistics which look not entirely bad, have quite high levels of underemployed part-time workers (Germany was of course the only country with a significant decline, post 2008, remember that this is about involuntary part-time working).

Discouraged2

And in countries like Portugal, Ireland, Spain or Cyprus the data underscore, once again, the severity of the crisis. Portugal is interesting, as its U-3 unemployment (normal unemployment) declined last quarters, while broad unemployment increased quite a bit (remember the sample sizes, however).

3. People not directly available

This seems to be not only the smallest but also the least cyclically sensitive category
Discouraged3

The main take-away: labour slack in the EU is absolutely massive which is a total social disaster and a ridiculous waste. This was already the case after the 2008 crisis. Austerity policies, aimed at limiting domestic demand and more flexible labour markets (flexible in the neoclassical textbook sense) seem to have aggravated this situation (real flexibility would f0r instance give people the right to work part time, like in the Netherlands).

  1. Henry Law
    January 19, 2014 at 10:31 pm

    Why is anyone surprised? Gross labour costs to employers are about 50% of the net purchasing power of wages. This is the effect of the tax system. Tax reform now. The problem is not going to cure itself.

    • merijnknibbe
      January 20, 2014 at 8:02 am

      The increases on VAT taxes on labour post 2008 all over Europa were, deliberatedly, imposed to crush demand. There were some exceptions like lower rates in Greek tourism and lower rates on part of construction in the Netherlands (repair etcetera). But generally, Brussels/Frankfurt wanted to limit demand. Now I do have to admit that current account deficits in southern Europa (except for Italy) were unsustainable though, in those days, the ECB people, inspired by people like Robert Lucas and Alan Greenspan (read his autobiography) considered this not to be of any interest, as capital markets were deregulated. One of the prime causes of the problem (free flows of capital oin combination whith banks which have a ‘licence to print’) was supposed to be its solution (and remember that there is a tendency for capital to flow to places were prices of assets (sorry, building plots) are increasing as capital is flowing to such places because these prices are increasing, how do you define a bubble…). Which means that there were reasons to limit demand in these countries (a very Keynesian analysis, by the way…). But after 2008, the bursting of the bubbles in Spain and Ireland and the truth about government finances in Greece already took care of this. This implosion of domestic demand should have been accompanied by an increase of demand in surplus countries, *lower* VAT rates on labour and government deficits which were not to be burdened by bad debts of banks, which would have increased the scope for expansive government policies (remember that even in 2013 when it was already clear that the Greek debt level was unsustainable the Greek government had to borrow billions and billions of Euro’s to shore up balance sheets of banks, which had deteriorated because of the earlier default of Greece…). Which of course leaves us with the problem of the balance sheets of the banks. We will have to learn that these problems are not a banking problem but really a problem of the balance sheets of households and non-financial companies. Banks must be allowed to go bankrupt (hey, where did that phrase come from in the first place…). Which means that debts have to be written down. As far as these debts concern ‘official’money, i.e. deposit money in the shape of bankaccounts all of it, i.e. M-3 plus longer term savings accounts), the ECB has to guarantee these deposits, after bankruptcy (or induced coma or something like that), literally with the printing press. Which means that the ECB makes up for the decline of the stock of money and the decrease of wealth experienced by the deposit holders. It is generally not the task of the government to guarantee wealth – but it is the responsibility of the government to keep the flow of money going. Which means that disasterous declines of the amount of money have to be compensated (think: Cyprus). Yes, there is moral hazard there, which however can be limited when employees of banks (instead of tax payers) become liable for the debts of the bank with (part of) their own wealth which, exactly for this reason, has to be part of the equity of these banks until some time (ten years?) after their retirement. According to neoclassical economics this won’t be any problem for the liquidity of these pensionado’s, after their retirement, as they will practise ‘consumption smoothing’ – wouldn’t any bank lend gladly to people whose wealth is part of the equity of the same banks!

  2. January 24, 2014 at 9:37 pm

    Reblogged this on Employment Relations and commented:
    Thanks for the possibility of reblogging. “Real-World Economics Review Blog” is a great blog!

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