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Brussels, 10 January 2012

Employment and Social Situation Quarterly Review: December 2011 - EU employment down and rising social concerns across Europe

The latest EU Employment and Social Situation Quarterly review released today by the European Commission shows that, after a moderate labour market recovery which lasted until the middle of 2011, European employment is down again. In parallel, unemployment, steadily increasing since the Spring, has now reached a historically high level cancelling out all of the previous improvements, while long-term unemployment accounts for an ever higher share of total unemployment. Most groups are affected but especially hard hit are the young, the low-skilled and migrants. The number of underemployed part-time workers and of people available for work but not seeking it anymore has also increased. Poverty is on the rise in many Member States, especially the peripheral ones. Young adults, children and single parents are particularly at risk. A recent study shows that on-going fiscal consolidation measures may aggravate further the situation of the most vulnerable if they are not carefully designed to avoid regressive distributive effects.

Is the EU labour market recovery continuing?

The EU economy grew modestly in the third quarter of 2011, although not enough to stabilise employment. The growth rate was 0.3 % quarter-on-quarter, while the annual growth rate declined from 1.7 % to 1.4 %. Growth forecasts for the EU were downgraded, also because the international environment became weaker. Whereas employment in the European Union moderately recovered during the year to the second quarter of 2011, it is again on a downward trend since the third quarter with a drop by 0.1 %. With this negative trend since summer 2011, more Member States are recording employment slowdown or decrease. With a new phase of steady increase since spring 2011, also European unemployment has reached a historically high level, at 9.8 %. The moderate recovery between spring 2010 and spring 2011 was not shared by all countries and, by the end of 2011, few countries are still on a downward trend while the recent worsening was particularly harsh in some Member States (Chart 1).

Chart 1: Employment change since EU employment latest dip (2010 q1) and in 2011 q3 % (quarter-on-quarter) in the Member States

The severe rise in unemployment over the period 2008-2009 has continued to influence long-term unemployment. After bottoming out at 2.5 % in mid-2008, the long-term unemployment rate in the EU had risen to the high level of 4% by mid-2011 (0.2 percentage points -pps- higher than a year earlier). This means that 43 % of the unemployed persons had been without a job for more than one year, compared to less than 40 % a year before and to just a third two years earlier (Chart 2).

Chart 2: Long-term unemployment rates for EU Member States, 2008q2, 2010q2 and 2011q2

What is the current social situation in the EU?

Recently published data for 2010 show signs of rising poverty in many Member States, especially in the Baltic States, Spain and Ireland. Some population subgroups are severely hit, even in Member States apparently less impacted overall. Those suffering the most obvious effects of the crisis are those who were already at greater risk before the crisis and with weaker links to the labour market, namely young adults, families with children and especially single parents. As a result of the strong rise in unemployment, the share of children and working age adults living in jobless households reached 9.9% in the EU27 in 2010, a 1 pp increase since 2008 (see Chart 3). Since the beginning of the crisis, this share increased by more than 2 pps in the Baltic States, Spain, Ireland, Portugal, Slovakia and the UK. It now exceeds 12% in Latvia, Belgium, the UK and Ireland.

Chart 3: Share of children and adults (not students and less than 60) living in jobless households (no adult working or working less than 1 day a week), by country – 2008 and 2010

Source: EU-SILC(2008-2010) – activity reference year 2007 and 2009 (except for CY 2007 and 2008)

For the EU as a whole, a majority of people continue to declare that their household financial situation has deteriorated over the year, confirming the downward trend observed since autumn 2010. This probably reflects the combined impact of factors such as higher inflation, rises in indirect taxes, low or stagnant wage growth and the increasingly constrained government's room for manoeuvre to ease the lowering of household incomes. The share of households experiencing financial difficulties across the EU has been steadily increasing since the beginning of 2011, particularly among the lower income groups, while the numbers of people running into debt are back up to around levels observed in late 2008. There is, nevertheless, a quite marked divergence in developments in aggregate household financial situations across countries.

Who is likely to be most affected by the current austerity packages?

The effects of fiscal consolidation measures vary greatly across Member States. A recent analysis evaluating the likely distributional impacts of the austerity packages in six EU countries shows that careful design of the measures is crucial to avoid that the most vulnerable bear the brunt of austerity. It shows that measures affecting the disposable income of households (e.g. increases in income tax, cuts in benefits or in public sector pay) are clearly regressive in Portugal and relatively neutral in Estonia and Spain. They are mildly progressive in the UK (not yet taking account of more regressive measures to be implemented in the coming years) and strongly progressive in Greece and Ireland. However, once measures to increase VAT are taken into account the impacts of austerity are more regressive. Finally, methods still need to be developed to fully assess the impact of cuts in public services provision, that are likely to affect more strongly the most vulnerable populations.

Is the labour market situation of young people getting any better?

The labour market recovery for youth did not last long and, after a year of stabilisation, unemployment again started to climb in May 2011, at a faster rate than among adults. Youth unemployment reached 5.6 million in November 2011, bringing the rate to a new high of 22.3 %, up 1.3 pps on a year before (Chart 4). Over the course of the entire post-crisis downturn, the unemployment rate for youth has risen very sharply - by more than 7 pps - from a low of around 15 % in spring 2008. Moreover, in that period the long-term unemployment rate of young people had increased from 3.6 % to 6.1 %, while the share of young people who are neither in employment, education or training (NEET) grew from less than 11 % to more than 13 %.

Chart 4: Youth unemployment rate for EU Member States, November 2010, August 2011 and November 2011

What about the labour market situation of other groups?

The labour market situation of third-country nationals remains difficult in most Member States and the economic downturn has exacerbated the gap with nationals. Migrants working in the construction sector have been particularly affected but the main factor behind the fall in employment of migrants is their share in temporary contracts. Almost one (active) migrant out of five is unemployed and the share exceeds 30% in the young age class. The on-average lower educational attainment of third-country nationals explains only partly their higher unemployment rate.

The labour market for the low-skilled (aged 25-64) stabilised by mid-2011. However, this segment suffered the most pronounced, longest-lasting effects of the crisis. At around 15 %, the unemployment rate for the low-skilled was markedly above the level recorded three years earlier, under 9 %. The gap between the low-skilled and the high-skilled widened to 9 pps. The increase in unemployment mirrored the decline in the employment rate for the low-skilled, which dropped sharply, by 3 pps, to below 55 %. It also pushed the long-term unemployment rate up steeply to 7.0 % in the second quarter of 2011, 2.8 pps higher than three years earlier. These negative trends aggravated the risk of poverty and social exclusion, which affected nearly 40 % of the low-skilled in 2010, up around 1.6 pps on the previous year.

On the year to the second quarter of 2011, the unemployment rate for older people edged slightly down to 6.7%, and it was up by just 1.7 pps on the low recorded three years before. In the same period, the inactivity rate declined, partly due to a significant pick-up in the employment rate for older people by 1.2 pps. Still, some issues have remained a challenge, i.e. the employment rate for older people, at 47.5% is very low, and more than half of the older unemployed remain without a job for more than a year.

What are the underlying labour market developments?

Within an overall weak employment growth, job creation again became balanced between permanent and temporary jobs in the second quarter of 2011 (Chart 5). The young remain the most disadvantaged, since fewer and fewer young people hold a permanent job or a full-time job. In the same period, employment inflows were gradually slowing down, while employment outflows were again on the rise suggesting a decrease in employment and an increase in unemployment. Most Member states experienced these trends.

Chart 5: Year-on-year change in permanent, temporary, self employment and total employment (15-64) (1 000 employees), 2006-2011

In 2010, beside the 23 million unemployed in the EU, accounting for 9.7 % of its labour force, another 19.2 million people (corresponding to 8 % of the active population) were underemployed or qualified as the potential additional labour force in the EU while being inactive. The groups under consideration are on the one hand underemployed part-time workers and, on the other hand, people classified as inactive although either seeking work but not immediately available, or available for work but not seeking it. Their overall number increased by 1.6 million (+9.2 %) compared to 2008, essentially due to a rise in underemployment and in the number of persons available to work but not seeking it, both categories largely dominated by women. Similar developments have been seen in the USA.

In the third quarter of 2011 labour productivity growth showed an uneven pattern across Member States. Most strikingly was the strong rebound in the United Kingdom and the marked decrease in Denmark. In the other Member States productivity growth stagnated, or showed more moderate changes. At the same time nominal labour cost growth remained moderate so that unit labour cost increases were limited.

What is the labour market outlook?

European managers expect employment to shrink in the tertiary sector, while EU firms’ employment expectations remain broadly optimistic in industry, but stubbornly pessimistic in construction. At the same time, EU consumers’ fears of unemployment are still on the rise. While vacancies continue to grow in a context of rising unemployment, hiring trends in the EU are somewhat mixed across Member States, and talent shortages remain a real issue. Growth in on-line job demand is stable while growth in temporary agency work is slowing down dramatically.

The Commission's Autumn European Economic Forecast projected annual average GDP growth in the EU at 0.6% in 2012 and 1.5% in 2013. The projected growth will not be sufficient for labour market improvements. Employment growth is expected to grind to a halt in 2012. As a result, unemployment will not fall over the forecast horizon, remaining at around 9.8% in the EU. Cross-country differences remain large.

This edition of the Quarterly Review analyses the situation in the energy sector, focusing on the specific case of the renewable energy industry. It also takes a closer look at the labour markets and social situation in Austria, Cyprus, the Czech Republic, Luxembourg, Malta, the Netherlands, Poland, Slovakia and Spain.

Quarterly EU Labour Market Review – December 2011:

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