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Brussels, 29 March 2012

Employment and Social Situation Quarterly Review: The number of jobless rises and social concerns persist

The latest EU Employment and Social Situation Quarterly review released today by the European Commission shows that, after a moderate recovery during 2010 and early 2011, the European labour market contracted again in the second half of 2011. Since spring 2011 the number of unemployed has been steadily increasing. This new rise has added 1.6 million jobless, with the unemployment rate hitting a new high at 10.1 % in January 2012. All large Member States, including Germany, are now facing deteriorating labour market prospects, while divergence in performance remains high across Member States. This latest review takes a closer look at the labour markets and social situation in Greece, Denmark, Finland, France, Italy, Latvia and Romania. It also analyses the situation in the agricultural sector, extended to the agri-food industry.

To address the challenges Europe's labour markets are facing, next April the European Commission will present an employment package. This package will identify opportunities for labour market reforms and job creation (for example green jobs, white jobs, ICT sector) and set out how EU funds can be used to make long-term investments in human capital.

What is the labour market outlook?

In February 2012, employment expectations remained depressed in the tertiary sector and in construction in most Member States, as managers in services, retail trade, financial activities and construction anticipate a contraction in their workforce in the months ahead. On the other hand, EU firms’ employment expectations remain broadly optimistic in industry. While the rise in vacancies seems to be coming to an end and restructuring continues to destroy jobs, growth in on-line job demand is stable and essentially driven by Germany and the environmental sector. The Commission's interim forecast released last month revised EU GDP growth downwards, to 0.0% for 2012, with the expected weak GDP upturn in the second half of the year unlikely to lift employment prospects during 2012.

How have recent economic developments affected the labour market?

The deterioration in the EU labour market mirrored the modest contraction in the economy in the fourth quarter of 2011, driven by a decline in domestic demand. Economic growth was -0.3 % quarter-on-quarter, while the annual growth rate declined to 0.9 % from 1.4 % in the previous quarter (see detail by Member State on Chart 1). Growth slowed down in most Member States (including Germany, France and the UK), with quarter-on-quarter growth ranging from -1.3 % to +1.1 %. Only four countries, Bulgaria, Denmark, Poland and Slovakia, improved their performance compared with the previous three-month period. In contrast, economic growth in the US accelerated, allowing the unemployment rate to drop 0.8 pp between June 2011 and January 2012 to 8.3 % (see Chart 2).

Chart 1: Real GDP and employment in EU Member States: evolution over the year up to 2011q4

Chart 2: Unemployment in the EU, US and Japan

Source: Eurostat

In a context of progressively weakening employment growth during 2011, the growth in permanent contracts remained in positive territory, whereas temporary employment lost momentum and self-employment even declined. The trend observed in recent years towards fewer permanent or full-time jobs for young workers and more for older workers is continuing.

Who has been affected most by the recent deterioration of the labour market?

The number of unemployed in the EU has been increasing steadily since spring 2011. The unemployment rebound has again hit men harder. The gender gap has disappeared as it did in spring 2009 and in January 2012 the unemployment rate for both men and women hit a high of 10.1 % (see Chart 3). There are signs that long-term unemployment in the EU is edging up; the long-term unemployment rate had risen to 4.1% by the third quarter of 2011, accounting for 43 % of the unemployed. On the other hand, the inactivity rate in the EU, at just below 30%, has not increased during the downturn, mainly thanks to the sustained upward trend in female participation. However, it increasingly conceals discouragement, as nearly one-in-five people who are inactive would like to work.

The recent downturn in the labour market situation for young people (aged 15 – 24) has continued in the EU. The youth unemployment rate has reached a historic high in several countries and an unprecedented one of 22.4 % in the EU in January 2012 (see Chart 3), affecting some 5.5 million young people. Some aspects of the labour market situation of young people are especially worrying: the increase in the long-term unemployment rate to 6.3% and inactivity resulting from discouragement (12.6% of inactive youth wanted to work but were not searching for employment in the third quarter of 2011). The deterioration is also mirrored by the increase in the share of young people neither in employment nor in education or training (NEET), which has risen from 12.5% in the third quarter of 2008 to 14.3% three years later. These developments led the European Commission to launch a Youth Opportunities Initiative, aimed to support Member States in defining and implementing appropriate strategies and measures for tackling youth unemployment, by making full use of available EU funding.

Chart 3: Monthly unemployment rate (%) for young people (15-24), adults (25-74), male and female January 2006 – January 2012 in the EU

What is the current social situation in the EU?

Results from consumer surveys indicate a moderate decline over recent months in the share of households experiencing financial distress across the EU. This is reflected in the recent fall in the number of households reporting they are running into debt, although the overall level of financial distress remains broadly similar to that observed in late 2008. The effect of the crisis continues to be felt to differing degrees according to the level of household income, with richer households continuing to suffer relatively much less than lower income households from the lingering effects of rises in financial stress due to the crisis. Furthermore, although figures for the EU suggest little change in the overall balance for household financial situations, this masks significant divergences in developments across individual Member States. While there are clear signs of deterioration of the financial situations of households in Greece, Spain or Romania, signs of improvements are recorded in countries like Germany and Sweden.

Chart 4: Balance of consumer opinion on the current financial situation in households for selected Member States, 2000 – 2012

How have children been affected by the crisis and what are the main drivers of child poverty in the EU?

In the EU, children have been more affected by the crisis than the rest of the population, mainly because they live in households headed by working age adults who were directly hit by rising unemployment. The risk of poverty or social exclusion of children increased by 1 pps between 2008 and 2010 to reach 27 % against a stable 23 % for the total population. As expected the rise in child poverty has been starkest in countries most severely hit by the crisis (Spain, Ireland, or the Baltic Countries), but the increase was also significant, especially for lone parents in countries where the overall population was better protected (Germany, Denmark, France). These trends are presented in Chart 5. The analysis also identifies the main factors of child poverty including the lack of access to the labour market or inadequate earnings from work for parents, or the weakness of social transfers in compensating for the cost of child. It also defines three groups of countries depending on which factor prevails, and should help identifying the policy responses that are needed in these countries.

Chart 5: Change in the share of children at risk-of-poverty or social exclusion between 2008 and 2010

Source: Eurostat EU SILC 2008 and 2010

To what extent social transfers help reducing poverty in the EU?

Social protection expenditure now accounts for nearly 30% of GDP in the EU. The redistributive impact of this spending is important. In the absence of social transfers, the poverty risk in the EU would be considerably higher at 26% than the actual at-risk-of poverty rate of 16%. At EU level, each additional percentage point of GDP spent on in-cash social benefits (except pensions) decreases the risk of poverty by 6%, reflecting the efficiency of social spending. The poverty reduction impact of social transfers varies across the EU. Chart 6 suggests that both the size and the design of social transfer explain the differences in the effectiveness of the transfers. Countries who spend most generally have the strong poverty reduction impact (top right corner), but a number of countries with a lower level of spending also achieve similar levels of poverty reduction (top left corner).

Chart 6: Efficiency of social transfers in reducing poverty differs among Member States and it does not clearly depend on share of in-kind benefits

Source: Eurostat, ESPROSS 2009 for social expenditure, EU SILC 2010 (income year 2009) for poverty

What are the main challenges and opportunities today on the labour market?

Through analysing the joint movement of unemployment rates and labour shortage indicators (Beveridge curves), labour market mismatches can be identified for each Member State. This analysis shows a tendency towards a higher level of vacancies for a given unemployment rate in the EU (see Chart 7). During the fourth quarter of 2011, the unfavourable economic developments continued to have an adverse impact on productivity growth across the EU, while in some Member States nominal labour cost growth remained firm. Weakening productivity growth and sustained nominal wage growth on average increased nominal unit labour cost growth, but overall this remained below the level of inflation.

Chart 7: Beveridge curve for the EU

Source: Eurostat

The transition towards a greener economy, i.e. competitive, low carbon and resource efficient, is expected to have a significant impact on employment and skills demand at the level of industries and enterprises. A greener economy will require new skills, such as knowledge of new insulation materials, new approaches to building, skills to install and maintain new renewable technologies, knowledge of new regulations, etc. A major challenge will be to identify and anticipate future skills needs and to provide effective skills responses at the appropriate scale and pace, with a view to enhancing the job potential of greening the economy, while preserving opportunities for all.

Full version of the Quarterly EU Labour Market Review, March 2012:

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