Wednesday, January 09, 2013

Eurozone Unemployment: Regional and country challenges

The Eurozone (EA17) seasonally-adjusted unemployment rate was 11.8% in November 2012 - -  a new record since 1999 - - up from 11.7% in October. The EU27 unemployment rate was 10.7% in November 2012, stable compared with October. In both zones, rates have risen markedly compared with November 2011, when they were 10.6% and 10.0% respectively. These figures were published on Tuesday by Eurostat, the statistics office of the European Union. Austria's rate was lowest at 4.5%; Spain's was highest at 26.6%.

Eurozone unemployment rate at 11.8% in November 2012; Austria lowest at 4.5%; Spain highest at 26.6%

There are two problems to address: 1) the regional aspect and aggregate demand 2) problems/challenges at country level.

I am among the minority that has no safety net and there have been two recessions in a decade. I have also worked in a large manufacturing operation in peril and the fear of unemployment among people in such a situation is not an abstraction.

Nancy Folbre, an economics professor at the University of Massachusetts, in The New York Times this week referred to the book “Unequal Democracy: The Political Economy of the New Gilded Age,” by the political scientist Larry Bartels of Vanderbilt University, who she says offers evidence that “elected officials are utterly unresponsive to the policy preferences of millions of low-income citizens.”

The unemployed and others struggling to survive can of course be invisible or distant to more than politicians.

In the US, the impact of public spending cuts to date have been at state level and Floyd Norris of the NYT said last week: "The December jobs figures out today indicate that there were 725,000 more jobs in the private sector than at the end of 2008 — and 697,000 fewer government jobs. That works into a private-sector gain of 0.6%, and a government sector decline of 3.1%. In total, the number of people with jobs is up by 28,000, or 0.02%."

Replication of the demand conditions that existed before the credit boom came to an end in early August 2007 cannot be achieved while President Fran├žois Hollande has shown the limits of his growth pact and tax ambitions. Austerity could well be eased and the suggestions of a German economics institute to raise pay levels by an average of 4%, would help but would not be insufficient.

New Eurozone governance structures will have to be in place before there are big moves on legacy issues. It would be a good thing but as with hopes for bipartisanship in Washington DC or a de-escalation of tensions between China and Japan, short-term progress is unlikely.

Despite labour cost rises in China, globalisation will continue to bring pressures. China will reach parity on R&D spending with the US by 2022; in the US, young firms - - those five years old or younger - - , which are mainly responsible for net job creation, now comprise fewer than 35% of all firms, down from nearly 50% in the early 1980s.

France has had a trade deficit every year since 2002 and a budget deficit every year since 1975; Southern European countries were particularly hit by Chinese competition in their traditional industries while Eastern European countries had a greater tradition in manufacturing when there were integrated with the West.

Spain's jobless rate was 24% in 1994 and 21% in 1997; Italy's jobless rate was 11.5% in April 1998 and 11% last November.

In December, Spain had 4.39m unemployed -- 9.4% or 457,000 were under 25. The Eurostat youth jobless rate is 56.5%, which relates to those who are not in full-time education.

Following big property bursts, there are big challenges with skill levels in both Spain and Ireland while Germany and Denmark have had longterm successful apprenticeship systems. 

Last year, the president of South Korea urged employers to hire more high school graduates and promised, as an example, to hire some for presidential Blue House. “Professional footballers just need to be good at kicking balls,” Lee said. “They don’t need to graduate from Seoul National University.”

The government is also investing in vocational schools designed to put young people on a career track without going to college. “Reckless entrance into college,” Lee has said, is “bringing huge losses to households and the country alike.”

As for Ireland, I have said in the past that high growth firms are not typically in high tech but it will take sometime yet for the reality check that relying on university research to create a jobs engine is a costly delusion:

Irish Economy: Innovation, a failed enterprise policy and inconvenient facts for 2013