Startling new labour market figures reveal how the eurozone is struggling to save a lost generation
Bleeding talent: In Europe, around 15pc of unemployed people have not had a job for more than four years
Europe's unemployment crisis is the biggest threat to the social fabric of its moribund economies.
For all the talk of a cyclical upturn in the single currency - bouyed by record low oil prices, unprecedented quantitative easing, and record low interest rates - joblessness strikes at the heart of the eurozone's political and economic malaise.
Unemployment in the currency bloc rose slightly in August to 11pc. New data from statistics body Eurostat, now lays bare the extent of Europe's battle against persistent joblessness.
• Fiscal union will never fix a dysfunctional euro, warns ex-IMF chief
Of the eurozone's near 18 million unemployed in the first quarter of the year, only 18.6pc - or 4.1 million - managed to find work over the subsequent three months. Nearly two thirds - just under 65pc - remained luckless in their search to get back in the labour force.
The numbers are just another glimpse of the chronic problem of long-term joblessness that plague the eurozone.
Hysteresis - when prolonged unemployment can become permanent
Defined as being out of work for more than a year, long-term unemployment is a dangerous development that keeps economists awake at night. It is rising despite the euro's recent revival in fortunes. In Europe, around 15pc of unemployed people have not had a job for more than four years.
This gradual loss in valuable skills needed to re-enter the workforce, leads to a phenomena economists have dubbed "hysteresis". It is when periods of prolonged unemployment can become permanent.
The Eurostat figures show that Greece in particular seems to have succumbed to hysteresis. Only a pitiful 8.6pc of unemployed Greeks managed to find work in the second quarter of the year, compared to three months prior. That's lower than some of the poorest parts of the non-EMU Europe - Slovakia, Bulgaria and Macedonia.
• Why there's little hope for Greece's unemployed
The numbers reflect a particularly tumultuous period in the country's eurozone future, when crisis talks bought the economy to a halt.
A scelortic process takes hold in economies in a state of perma-recession
But the longer-term trend is clear. Athens and its environs also hold the ignominious title of the long-term unemployment capital of Europe.
This scelortic process takes hold in economies in a state of perma-recession. Greece is arguably the best example in the eurozone – having suffered a downturn of greater magnitude than the US Great Depression of the 1930s.
Governor of the Bank of England Mark Carney has warned western policymakers to engage in a "race against hysteresis". Mario Draghi of the European Central Bank has surmised it as the process when "cyclical unemployment becomes structural".
But persistent unemployment is not merely a scourge to those who suffer being out of work.
The euro area is vulnerable to negative shocks and prolonged low growth, with negative spillovers
IMF
Larry Summers - who has revived the notion of "secular stagnation" - has spoken of hysteresis in the same breath as the long-term decline in potential growth rates across the developed world.
They are two sides of the same coin.
The forces of hysteresis are "a shadow cast forward on economic activity” according to Mr Summers. By heightening a natural rate of unemployment, this then has spillover effects which can destroy the future growth of an economy in years to come. It is a self-reinforcing cycle of stagnation and labour force ruin.
Potential growth in the eurozone is estimated to average just 1pc over the medium term, according to the International Monetary Fund. This "is well below what is needed to reduce unemployment to acceptable levels in many countries", warns the Fund.
How recessions have hit growth potential: Real GDP growth in the US and eurozone (base = 2000)
"Because growth prospects are subdued and policy space is limited, the euro area is vulnerable to negative shocks and prolonged low growth, with negative spillovers" say the IMF.
• Four charts on why the euro isn't working for Germany or Greece
The problem is not new. Similar forces gripped the US during the Great Depression and were seen in Europe during the stagnant 1970s and 1980s.
More than three decades on, they beset the Continent once again. This time round, it has left policymakers scratching their heads. According to European Central Bank's own calculations, the near 11pc unemployment rate is here to stay. Even in an optimistic case, it will only fall to 9pc in 2020 when the eurozone's economic slack has been used up, according to the IMF.
Both Mr Summers and the IMF have called on eurozone authorities to deploy fiscal tools to fight off hysteresis. But the prospect of mass fiscal expansion is not on the cards in an EMU still fixated on hitting budget targets as the best way to insulate it from a new global crisis.
As for monetary policy, academic economists theorise over raising central bank inflation targets and adding an unemployment mandate to the ECB's single focus on price stability. Yet such debates are divorced from the political reality of the eurozone, where it took years of institutional wrangling for the ECB to carry out its limited foray into QE.
But Europe's new hysteresis disease is setting in. The longer it stays, the harder it will be to save another lost generation
0 comments:
Post a Comment