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Handle with care: Europe’s fragile jobs growth

Youth Club? EPA/Andy Rain

Handle with care: Europe’s fragile jobs growth

Unemployment in the euro area finally seems to be showing signs of a timid recovery, according to the winter forecasts from the EU, but that doesn’t mean that we can rest on our laurels. A bumpy ride lies ahead of peaks and troughs, reboots and crashes and this is especially the case for the jobless youth. We have never been so close to a possible unrepairable crack within our classic growth model. No recovery will be sustainable unless a solution is found for their predicament.

Unlike past economic crises, the burden of the current one has not been shared equally between generations. The weak link has been those in the 15-24 age group, who are paying the high price of socio-economic exclusion. And this is not all.

While youth unemployment has been the key symptom of the crisis in the southern European economies, the richest economies of the north experienced, for the first time, the emergence of senior workers’ crisis for those aged between 55 and 64. We run the risk of creating a “sandwich” of the working classes, given the implicit labour fragility of both groups, and the difficulties of reintegration.

The emphasis will continue to be on youth unemployment and on the idea of a lost generation, but measuring unemployment is not simple at all. There are biases in evaluating its real impact both through the unemployment rate and unemployment ratio as highlighted recently by a research conducted by Deutsche Bank. If our ability to determine the gravity of the situation is directly linked to the data put in front of us, then we would do well to interrogate it a little.

In brief, the youth unemployment rate is a pretty simple cut of those who are officially unemployed against those in a job in the 15-24 age group. It routinely delivers results of 20% and above across European countries and it’s what the media tend to base their attention-grabbing messages on. The trouble is that it’s biased towards larger results as it fails to take account of those in education. As an alternative measure, Eurostat also reports the youth unemployment ratio, which takes account of all people aged between 15 and 24, irrespective of whether they’re studying, job-hunting or employed.

This measure makes the numbers look much less alarming. We notice that in some economies – especially those in southern Europe – the situation is difficult but not necessarily disastrous. If this measure was to be adopted as the accepted norm, we would have a less stark comparison between north and south and, possibly, less of a political impasse over the idea of a two-speed recovery in Europe.

Source: Deutsche Bank/Eurostat. Deutsche Bank/Eurostat

But the debate over rate vs ratio is not really the issue here. We could argue that neither provides an accurate sense of the reality, given the intrinsic difficulty with the measurement of labor in general. For instance, neither indicator takes into account the hoards of individuals who are employed by the shadow economy, for which estimates range from 10-30% across the EU regions.

The numbers might frame the debate for the media, but the real – and much harder to quantify – concern is the structural and persistent loss of competitiveness in the euro zone, where more and more people are experiencing socio-economic deprivation and decreased standards of living.

The strongest support to this argument is the flip side of unemployment, i.e. employment. While young people struggle to break into the job market, and seniors struggle to get re-instated into the workforce, those in the middle are enjoying the benefits, but also bearing the load. They face the dual pressure of funding social welfare for those at each extreme while also suffering deeper psychological pressure to retain their precious job. As a consequence, we experience less labor mobility, and indirectly but crucially, less innovation.

Statistically, we see that employment in 20-24 age group is stronger, in terms of stability, mobility and pay, than the group aged 15-20, and that the group 25-29 is stronger than the one aged 20-24 and the one aged 30-34 is stronger than the one aged 25-29. That progression is now at risk from this phenomenon of peripheral exclusion, which could yield a serious cost to our societal welfare, even if the consequences may take time to emerge. Factor in demographics in Europe which do not signal population growth anywhere and the need for action is clear.

What lies ahead

The main challenge ahead is complex and requires efforts on several fronts. On one side, the integration of those who have never managed to be integrated is paramount if we are to build a robust recovery. We need to build a virtuous circle of innovative employment by sophisticated businesses. At the same time, the poor quality of some current workers’ contracts needs to be rethought towards the long-term goal of more stable employment.

The fragility of the current system will continue to deliver unexpected shocks given the sheer volume and velocity of the variables within it. This will demand an unprecedented level of flexibility, currently non-existent in public policy.

However, the structural nature of the crisis does offer a historical opportunity to redesign the rules that are necessary to build a new inclusive market, supported by diverse participation across generations. What needs to occur is:

European institutions need to coordinate efforts to come up with a realistic set of policies that are systematically applied across Europe without bumping up against bureaucratic obstacles.

National governments need to deal with this issue pro-actively rather than coming up with half-hearted measures more designed to win votes than demonstrable change.

Citizens and communities need to accept that other forms of education are equally useful. We can no longer pretend that higher degrees are the only instrument with which to seek employment. A substantial transfer towards vocational education should be advocated.

This is required to support the increased complexity of modern societies. We have seen how close to implosion the European Union came as the financial crisis swept through the continent. It isn’t so far-fetched to imagine that the detrimental impact of a prolonged and structural employment crisis could sow the seeds of the EU’s disintegration and the end of the aspirations of the Union’s founders. We need to act now.