Unemployment falls, but remains the problem in Euroland

In the European Monetary Union (EMU) unemployment has been falling since Q2 2013. The rate has been gradually reduced from over 12 percent to at present 10.2 percent. A large proportion of the new jobs created can probably be attributed to the moderate economic recovery. However, it has not yet become strong enough to drive the rate down to levels prior to the crisis. For this reason, there has only been a very slow decline in the unemployment rate.

The turgid unemployment in many EMU member states is also a reflection of a lack of structural reforms. Some of the Eurozone economies have in the recent past introduced structural reforms to their labour markets. On balance, the indicators on labour market flexibility show that deregulation of termination and recruitment regulations has increased the scope in the labour markets of the individual EMU member states. And in response to the severe crisis between 2008 and 2013, precisely in Spain, Greece and Portugal reforms were initiated that made it easier to reduce unemployment.

Greater flexibility facilitates job creation during the upturn.

In 2015, Italy comprehensively reformed its labour market; however this has not yet had the desired effect, among other things because economic growth there is still weak. In part, in the course of the elections in Spain and Portugal there has been renewed debate about repealing part of the reforms. That would, at any rate, be a step backwards. In France the government is tussling with the trade unions to set urgently-required labour market reforms in motion. The massive protests and strikes are a clear sign that there continues to be little social acceptance for this necessary process of change.

It is therefore hardly surprising that there are great differences between labour market trends from one individual EMU member state to the next. In Spain, Portugal and Ireland, all hard hit by the crisis, the rate of unemployment has since fallen appreciably, albeit from a high level. In the core countries such as Belgium, Finland and Austria there has, by contrast, been hardly any movement, as unemployment there has stagnated or is even edging up. Among the large economies, developments in France and Italy remain problematic. There, the rate of unemployment has hardly budged at all. In Germany, by contrast, unemployment continues to fall and in some sectors the country is approaching full employment.

The uneven trend looks set to persist. It is unlikely that the labour market reforms required will be resolved in the foreseeable future and in some countries the clock may actually be put back.

Accordingly, unemployment in Euroland will probably only fall slightly and the people in countries with high unemployment are therefore not likely to become much happier. This would seem in particular to be the case in France. The political ripples are thus hardly likely to weaken in coming months but may in fact even gain momentum.

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