Connect with us

Economy

#Eurozone: Unemployment higher than data show, capping wages

SHARE:

Published

on

We use your sign-up to provide content in ways you've consented to and to improve our understanding of you. You can unsubscribe at any time.


Eurozone unemployment is higher than official data suggest, continuing to keep wage growth muted, a European Central Bank study showed on Wednesday (10 May), raising fresh doubts about whether the bank can start rolling back its stimulus measures soon, writes Balazs Koranyi.

Wage growth has been unexpectedly weak for a bloc that is enjoying its best economic run in a decade and the ECB has argued that better wage dynamics are needed for the inflation rebound to become sustainable, a key condition for cutting back stimulus.

Explaining the apparent disconnect between the rapid unemployment drop and weak growth in pay, the ECB said headline jobless figures exclude people who fail to meet strict statistical criteria and also exclude part time workers seeking more hours, even though both groups add to labor market slack.

Once adjusted for these categories, the labor market slack is around 15%, well above the official 9.5% unemployment rate and only Germany appears to be displaying signs of labor market tightness.

"In France and Italy, broader measures of labor market slack have continued to increase throughout the recovery, while in Spain and in the other euro area economies, they have recorded some recent declines, but remain well above pre-crisis estimates," the ECB bulletin article said.

"The level of the broader indicator of labor underutilization is still high, and this is likely to continue to contain wage dynamics," it added.

Labor market reforms, championed in part by the ECB, have fueled the rise of part time work, which has given employers greater flexibility. As a result, companies are hiring more part time or temporary workers instead of giving current employees more work.

Advertisement

Indeed, part time and temporary employment has risen by nearly four million since the financial crisis even though total employment has not increased, a potential drag on wages.

Critics of the ECB policy argue that solid economic growth and inflation already support the case for lowering stimulus but the ECB has repeatedly pointed to wages as a source of concern.

The ECB estimates that about 3.5% of the working age population is considered statistically as inactive, even though they could rejoin the workforce quickly. Another three percent is underemployed, or working fewer hours than would like to.

That puts the broader slack three percentage points above its pre-crisis level, the ECB data indicate, suggesting that unemployment has some way to fall for significant labor market tightness.

Another headache for the ECB is that the majority of new jobs created are in the services sector, where productivity gains are inherently lower, capping the potential for wage increases.

Share this article:

EU Reporter publishes articles from a variety of outside sources which express a wide range of viewpoints. The positions taken in these articles are not necessarily those of EU Reporter.

Trending