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In Europe, Few Jobs for the Old and Even Fewer for the New

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European Youth Unemployment Cartoon

We’ve known Europe’s unemployment problem is worsening as the EU brushes against renewed recession, but the jobless rate for the continent’s young people has reached historic highs in recent months. Image courtesy of The Guardian UK.

On Tuesday I read a piece in Reuters, “Germany Sees ‘Revolution’ If Welfare Model Scrapped“, on the mounting concerns for Europe’s Millenials who are losing (or unable to find) jobs at almost twice the rate of their parents. German Finance Minister Wolfgang Schaeuble argues that while Europe needs to continue getting its fiscal house in order, the youth unemployment problem could explode into a political crisis if the EU’s welfare system changes to resemble that of the United States. Leaving the immense irony of a German official defending spending on welfare aside for a moment, unemployment figures among Europe’s young people are staggering, and given the unrest Europe’s already seen, Schaeuble’s fears of ‘revolution’ are not without some basis. As labor markets across Europe continue to flounder the EU needs to act quickly and quell the jobless storm, but with austerity worsening working conditions, can Europe’s leaders do so while also getting its fiscal house in order?

How Austerity Hits the Young

Using EUROSTAT data I’ve worked up a pair of charts to show the change in youth unemployment rates for the same group of eight nations from last week’s piece. The first one shows the advance of jobless rates before and during the onset of recession across the continent.

Data presented was collected from EUROSTAT's, "Unemployment rate by  Age Group" historical data tables.

Data presented was collected from EUROSTAT’s, “Unemployment rate by Age Group” historical data tables.

Levels in Greece and Spain are what you would expect given the accelerated contraction in their economies and the labor market reforms that were conditions of debt restructuring deals. EUROSTAT’s data shows that in less than four years the unemployment rate among young people in both countries more than doubled. Portugal, Italy, and Cyprus didn’t see the rates increase at the same rate, but with scores between 28 and 38 percent, they exceed the average level for the European Union with room to spare.

France is a more interesting case, considering that its leadership was on board with the fiscal discipline rhetoric but the behavior of its economy more closely resembles those plagued by austerity. Here you can see that its trend line, shown in blue, is comparable to both Italy and Portugal from 2005-2009, but over the entire timeline it shows much higher rates than either of its pro-austerity partners. Last, Germany and Austria’s (rather predictably I might add) lines show significantly lower, if not receding, rates. In fact, youth unemployment in Germany improved year over year since 2009 and rates in Austria have remained even lower than in Germany. Notice again the discrepancy between the nations where austerity reforms were implemented and those supporting the process.

Data presented was collected from EUROSTAT's, "Harmonized Unemployment rate by Age Group" historical data tables.

Data presented was collected from EUROSTAT’s, “Harmonized Unemployment rate by Age Group” historical data tables.

The second chart provides a more detailed view of the evolving unemployment crisis, covering the change in rates over the past 11 months. It’s clear that Spain and Greece are in a league of their own, as jobless rates climb toward 60 percent, more than double the Eurozone average of about 24 percent. Recent figures from Greece suggest that youth unemployment will move into the 65-70 percent range as economic forecasts from Athens show few signs of improvement. Portugal, Italy, and Cyprus are showing slower growth, but still trend well above the Eurozone.

Portugal and Italy in particular are in precarious positions given increasing civil unrest over crippling austerity reforms and the slow progress of  national governments struggling to revitalize economic growth. German and Austrian youth unemployment continues to trend at about half the Eurozone rate and about one fifth the rates seen in Greece and Spain. Based on available data, the jobless rate for young people in Germany and Austria has more than stabilized around 8.9 percent and isn’t expected to rise substantially, despite recently disappointing economic data from Europe’s largest economy.

And the Moral of the Story Is…

Across Europe, young people are unable to find work in increasing numbers and as economies continue to struggle under austerity reforms hacking away at public sector spending and private sector growth, the political crises of later 2010 could resurface. The ECB has already taken the first steps in trying to provide relief by lowering interest rate targets to ease borrowing costs, but the EU needs to take a more direct approach to providing relief for the European consumers and the long-term unemployed.

Austerity reforms impair social benefit spending, a key source of financing for Europe’s welfare structure, so if the EU plans to continue down this path, future reforms need avoid this section of government balance sheets. In “All The Kings, Their Horses” I outlined a strategy to adjust value-added tax rates to allow consumer good prices to fall and I still think it’d be a good place to start. If the coffers for long-term unemployment relief and wages are to shrink, consumer staples should decline in relation to avoid episodes where people dine from garbage cans. In the end, Europe should scrap the austerity mantra and concentrate its efforts on supporting unemployment relief, tax reform, and job creation because these inane budget cuts aren’t only jeopardizing Europe’s present. They’re handicapping its future.

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About Alexander J Smith III

  • bliffle

    Unemployment is bound to rise as automation continues apace. No other result is possible. We need to reduce the work week to compensate. Reduced workweek will have the side benefit of improving mental health among the population. The only psychological deficit is that workaholics will suffer, as well as slave drivers.

    Who says everyone should work 40 hours per week? Kaiser Wilhelm?

  • Rob Knaggs

    Some historical context for your non-British readers:

    The t-shirt that the girl in the cartoon is wearing is a reference to an iconic election campaign poster from 1979, in which the Conservatives attacked the outgoing Labour government’s employment record.

    The poster is iconic not because it spoke a truth (it may or may not have done depending on which political historian you listen to), but because of the ironic fact that, during the Thatcher era that followed, the unemployment rate almost tripled.