Eurozone faces record-breaking unemployment figures

 

Group1: Brian Otieno, Matti Vesikansa, Ossi Mansikka, Julia Virtala

 

According to Eurostat, in January the euro area unemployment rate reached yet a new peak of 10.7 percent. The financial crisis of 2008 seems to have scarred the unemployment rate in Europe permanently. The current unemployment figures total to over 16.5 million people without work, which is four million more to the pre-crisis numbers.

 

Despite the slight recovery during the years 2010 and 2011, unemployment has been rocketing since early 2008, when unemployment rate in the euro area was at its lowest, 7.2 percent. One of the reasons for these figures is deficits in national budgets. Adapting to the financial situation has led to labour reforms, which have the biggest impact on the public sector. The estimates for this year are yet more sad:

“The brunt of the crisis will be borne by the lowest qualified, and those in the public sector, whose wages and jobs are likely to be impacted first by austerity measures,” said Ronald Janssen, economist at the European Trade Union Confederation in Brussels.

 

Consequent of the current and future development in the unemployment rate is the decline in the purchasing power of euro citizens. This has negative affects to the economic growth in long-term.

 

A bigger problem beyond euro-average figures is the diversity of national economies and labour markets of the euro area. For instance since the beginning of 2011, Greek unemployment is reaching over 21 percent in total. Spain is also a major concern with its unemployment rate of 22.8 percent. By contrast, the lowest unemployment rates were recorded in Austria at 4 percent, The Netherlands at 5 percent and Luxembourg at 5.1 percent.

 

Mario Draghi from ECB says that tackling with the growing youth unemployment problem should be of an immediate concern; ”The European social model has already gone when we see the youth unemployment rates prevailing in some countries. Reforms are necessary to increase employment, especially youth employment, and therefore expenditure and consumption. ”

 

According to Draghi, a specific reason for the inefficiency of European economies is their inflexibility.

 

The unbalance between euro members is best summarized by comparison of the far ends. Where Greek unemployment went up nearly 4 percent last year, Germany was able to cut it’s unemployment rate by a whole percentage.

Image

Source: Eurostat: http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/3-01032012-AP/EN/3-01032012-AP-EN.PDF

 

Spain suffers from chronic unemployment

 

Spain is without work. Its unemployment rate stands at 22.8 percent, being the highest of the euro area and third highest in the world. It is almost twice as much as that of the euro zone as a whole.

 

While markets do not stop obsessing over debt, the lack of jobs is the real obstacle to a recovery of Spain. It is also the main cause of the debt itself, since the state has to spend on subsidies for the unemployed. Yet it’s not just the crisis. Unemployment has been high in Spain for nearly 40 years.

 

Construction industry plays a significant role in the unemployment of Spain. Spain’s reliance on the housing market began in the 60’s. Since then, successive democratic governments have done little to find an alternative model of growth.

 

The result is that Spain needs to grow to over 3% to create jobs. And it did during most of the 80’s and 90’s, in what Spain became known in other countries as the “Spanish miracle”.

Only it was not a miracle but a mirage, and the financial crisis has only made the problem noisier.

 

Spain also stands out for its low labour flexibility, one thing to improve would be to increase the geographical mobility of the unemployed. Today there are no incentives to induce workers to change their place of residence for work. Besides the low level of wages does not help or encourage workers enough to move to other locations.

 

Another cause of unemployment in Spain is that it has structural weaknesses. The next labor reform that will perform the government should try to improve these deficiencies. In any country, the unemployment rate reflects a direct relationship to economic and internal and social structural aspects.

 

The data show that open economies, flexible and highly liberalized, have very low unemployment rates.

 

 

Sources:

 

http://economia-eficiente.com/principales-causas-del-desempleo-en-espana/

 

Eurostat

http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/3-01032012-AP/EN/3-01032012-AP-EN.PDF

 

Trading economics.com

 

Rapid:

http://europa.eu/rapid/pressReleasesAction.do?reference=STAT/12/

31&format=HTML&aged=0&language=EN&guiLanguage=en

 

The Spanish stat site

 

http://www.eurotrib.com/story/2012/2/24/63011/3176

 

http://www.ft.com/intl/cms/s/0/7217e898-362c-11e1-a3fa-00144feabdc0.html#axzz1pj2arhCD

 

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One Response to “Eurozone faces record-breaking unemployment figures”

  1. peterverweij Says:

    Reblogged this on Peterverweij’s Weblog.

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