Wednesday, November 2, 2016

Jobs in Europe

When one takes a look at unemployment rates in the EU, one notices the wide range. In July, they ranged from 3.9% to 23.5%!

The Eurozone's average is 1.5 points higher than the EU one. That is because Eurozone members tend to have higher unemployment rates than the non Eurozone ones. Could that be attributed to Eurozone policies, eg the 3% budget constraint?

Before we look into that, let's see who has the really high unemployment. Greece, Spain, Croatia (non Eurozone, the EU's newest member), Cyprus, Italy, Portugal and France. These job markets are above the Eurozone average and other than Croatia, they are all Eurozone members.

But they have something else in common. They are all South states and all except Portugal are Mediterranean ones.

Add to that one fact: The lowest unemployment rate in the EU can be found in a very small Mediterranean member, Malta, a member of the Eurozone!

Next to Malta is a former Comecon member, the Czech Rep and then Germany (Eurozone member). Then the UK, Hungary (another ex-Comecon) and the Netherlands (another Eurozone member).

One could say that non Eurozone members, because they have wider economic policy options than Eurozone members have better performing economies, thus lower unemployment and that Germany and NL are part of Eurozone core thus best adjusted to the Eurozone. Whereas Greece, Spain, Italy, Portugal and Cuprus are not Eurozone's best members.

One other theory could be that flexible employment contracts (part time, zero hours, mini jobs) are more predominant in Germany and NL, as well as the UK, and that ex-Comecon member have low wages thus more jobs compared to the Southern states that have less flexible labour markets than Germany, NL and the UK and higher wages than the ex-communist states.

Add to that the language barriers to mobility in the intra-EU labour market and you may have an explanation why rates vary so much.

What is the net result? An inefficient EU labour market.

What can be done? Not much.

a) Establish English as the language in the EU labour market? Not possible.
There types of jobs (medical, IT/engineering, cleaning/care services) where there is high intra-EU mobility, from the poor member economies to the richer ones. But if you are working in Marketing or PR in Hungary or Spain or Greece why would a company in Germany or the Netherlands hire you, especially if you do not speak German or Dutch? That is a feature of the EU market compared to the US.

b) So in effect the 28 (soon 27) national EU labour markets remain "sovereign". How do you then explain the high penetration of non EU migrants? Well, a very large % is in blue collar - manual jobs. A very good example of that is Greece.

With respect to EU Reform, are there any insights? Not really, other than the EU needs to become more of a united/single economy. Feel free to send me a comment at if you think there are.

Would Greece, Spain, Cyprus, Italy, Portugal have been better off outside the Eurozone, ex post? That is a topic for a future post.

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