Home > Uncategorized > Job growth in europe since 1995. Not what we are told to expect.

Job growth in europe since 1995. Not what we are told to expect.

Do low wages lead to high job growth? Or are UK-style ‘flexible’ job markets in combination with house price subsidies the answer to the European jobs problem? In the long run – not really. Low wage Poland did not do too well, since 1996. And in a longer term perspective UK job growth – at present about the highest of the EU – is not really special. Job growth does not seem to be about flexibility and low wages but about ‘dynamism’, the growth and decline of entire sectors of the economy in combination with the changes in productivity, events which are to an extent itself enabled by flows of labour towards new sectors.


In the UK this meant, after 2008, an outflow from high productivity oil and finance and an inflow into low productivity ‘hospitality’. In Spain, health care did well, after 1995. In the somewhat longer run, the growth of sectors seems influenced by supply side reactions like the monetization of modern life itself – i.e. the fast post 1995 rise of the (female) participation rate in a country like Spain. We have to face the fact that the bubbles (not so much the price bubbles but the income generating building bubbles) might have enabled the growth of new sectors like health care which, after the bust, can hold their own… Between 1995-2014 the highest rates of job growth can be found in the bubble economies Ireland, Spain and Iceland (graph 1). Before 2008 job growth in Spain was extra-ordinary, with rates of about 6% for several years in a stretch. The fact that part of this growth was bubble related does not change the implication of this fact: given demand, the Spanish labour market was capable extra-ordinary dynamism.

There does not seem to be any need for Spanish rule changes aimed at a more flexible supply of labour. And mind that job growth was high even before capital inflows wrecked the Spanish economy (graph 2). Mind also that job growth in low wage Poland (according to Branko MIlanovic one of the few transition countries which at least did moderately well) was much lower than in medium wage Spain.In Spain and Ireland unemployment is high but this is despite the increase in jobs and because of a fast increase in the labour force (rising female participation rates and a massive immigration (which after about 2010 changed into massive emigration). It’s not really something which inside my comfort zone, but we have to face the fact that it’s possible that somehow, the bubbles might have contributed to structural supply and demand changes (health care!) which enable a lasting higher level of employment. For the next English/British/NSUK government this means that it should not so much ramp up house prices but should enable much more building in and around London. Not labour markets and financial markets (to the contrary!) but zoning should become more flexible (Caveat: I do not endorse bubble, see the remark about finance and I’m also in favor of a land tax (also for land underlying houses), to mitigate price increases. And it’s outright daft that we still build new houses with tiles in stead of solar panels as roofing – the costs of tiles have to be subtracted from the investment costs of solar panels!). Mind the low level of job growth in Germany – the main reason why German unemployment is low is demographics (fact-checked one liner: the number of German one year olds is less than 50% of the number of fifty year olds). Germany, not Greek or Spain, is the country which has to increase the pension age. With regard to job creation, France did much better than Germany though recent developments are disappointing. The level of British job growth, though very welcome, is not special. ‘Even’ Italy did better, about a decade ago, though Italy is, considering it’s extra-ordinary high level of ‘broad’ unemployment and as far as macro statistics go, the only large European country which really might have a structural labour market supply side problem.


Remarkably, the Baltic economies (Estonia, Latvia and Lithuania, all of them austerity darlings) witnessed a total loss of employment between 1999 (earlier data are not available) and 2014 of about 200.000 jobs, this contrary to an increase in a somewhat comparable low wage country like Poland.

All data: Eurostat. Hungary, Slovenia, Switzerland: 1996-2014. Poland, Romania: 1997-2014.

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