Good news from the European labour market
Graph 1. Unemployment in France (Eurostat)
Is the unusual combination of low oil prices, a relatively low exchange rate, less austerity and low interest rates finally paying off? The European labour market shows some green shoots. European unemployment is going down, which is to a relatively large extent due to rapidly decreasing French unemployment (graph 1). French youth unemployment is not (yet?) going down and women younger than 25 as well as those between 25 and 74 do quite a bit better than men of the same age but on average after July French unemployment has suddenly plunged. According to Eurostat. I’m not sure if these data are entirely dependable as Insee (the French statistica institute), which only gives quarterly data, is a lot more cautious but it is what Eurostat publishes.
Unemployment in the UK is going down, too, and is finally starting to reach more acceptable levels of below 5% (graph 2). Mind that austerity in the UK has been quite limited, it has a much larger government deficit as a % of GDP than France. Importantly, the number of unemployed per vacancy continues to decrease and as wage growth is about 2% while employment also increases at a brisk pace of 2% total wages increase at a 4% a year rate. Booming house prices combined with (largely due to lacklustre growth in the Euro Area) an increasing current account deficit however mean that the British economy at risk.
Graph 2. Unemployment in the UK. Source: ONS.
Combining events in France and the UK with lower unemployment and 1% employment growth in Germany as well as still extremely high unemployment but high (3%!) employment growth in Spain this means that there is, finally, at least some recovery in Europe. The Euro Area has however increasing problems with its current account. It shifted from about -2% of GDP around 2008 to +3% of GDP. This of course mitigated the consequences of the fall in investment and, after 2010, government austerity. It is however hard to believe that the current account can increase much further, as this will lead to problems with the USA and the UK – domestic spending has to go up.
On the positive side it seems that the ‘labour intensity’ of domestic spending has increased. Instead of flowing to high wage sectors like oil production or finance spending is increasingly located in low wage sectors like tourism and care. Part of the growth of tourism, especially in a country like Spain (where the already large tourism sector grows at double digit rates) is no doubt caused by the decline of tourism in countries like Egypt, Lybia and Syria. This might not last (let’s hope so). But even then it’s better when people d spend the money on tourism in Spain than not at all.