The most important issue facing the European Union today is unemployment. Specifically, the high rate of unemployment among young workers, which risks undermining skills, investment in education and is driving an increase in political instability.
Analysts at HSBC looked at the dire state of the EU’s employment market in an economic research booklet on the continent published earlier this week. And the figures published in the report are quite concerning.
The European unemployment problem
Unemployment has fallen steadily across the Eurozone during the past three years from a high of 11% in April 2013 to 8.6% in May 2016. However, while the unemployment rate is moving in the right direction, worrying trends are developing.
The prospects for low-skilled workers are deteriorating, and the fall in the unemployment rate has been most dramatically felt in the part the population that has education levels of only primary or lower secondary education. What’s more, many of the new jobs being created are on temporary contracts. In fact, around 50% of the 4.5 million jobs created during the recovery are on a temporary basis. These temporary jobs aren’t doing much to help the European population.
HSBC points out that despite falling unemployment, there are a record number of people in the Eurozone who are reporting they are having difficulty making ends meet. According to Eurostat’s data, around 12% of the Eurozone population was struggling to make ends meet during 2015. Back in 2006 just under 8% of the population reported financial difficulties. 36% of the population is likely to struggle with an unexpected financial expense, up from 33% in 2006.
The one bright spot in the Eurozone employment market is Germany. In May 2016 Germany reported an unemployment rate of 4.3% and a youth unemployment rate of 7.2%. The only other country in the EU bloc that reported a lower unemployment rate than Germany at the end of May was the Czech Republic with unemployment of 4.1%. The German model is based on the quality, not the quantity of labor. The country isn’t turning out more graduates as a percentage of its population than other European countries, but it is providing more employable workers and the employment rates in the lower-skilled sectors are much higher than elsewhere in Europe. Apprenticeship schemes coupled with favorable legal, financial and other factors all contribute to Germany’s strong employment market.
Other European countries need to find similar ways to stimulate jobs markets before it gets too late. There are 10.5 million long-term unemployed workers in the Eurozone and getting these long-term unemployed back to work should be an essential priority for policymakers in Europe.
A recent study published by the Boston Fed showed that job applicants who have been out of work for six months were rarely contacted for an interview. The survey found that employers were screening out long-term unemployed regardless of experience, and this could be even more damaging to young workers who could struggle to get on the employment ladder altogether. Europe’s 19% youth unemployment rate needs to start falling before long-term damage starts to take hold.
Unfortunately, social effects of long-term youth unemployment are already starting to impact the lives of citizens across the Eurozone. Eurostat data shows that the risk of poverty or social exclusion among Spanish citizens aged 25 to 54 has risen from just over 20% in 2005 to near 32.5% for 2014. At the other end of the spectrum, the risk of poverty or social exclusion for those aged over 55 has fallen from 28% to around 18% — surely an unsustainable trend.