Europe's Continuing Employment Crisis

May 31, 2013

There has been a sigh of relief coming out of Europe recently as the economy shows signs of stabilizing. Calling 2012 a “nasty year for the Eurozone economy,” Dr. Alexander Börsch, head of research for Deloitte Germany, recently predicted that the region will return to “weak growth” in the second half of 2013, bolstered by exports and the easing of fiscal restraints.

But the labor market in Europe keeps getting worse, notes Bill Adams, senior international economist at PNC Financial Services. Unemployment in the Eurozone edged up to 12.2% in April from 12.1% in March. That is 1% higher than the unemployment rate in April 2012. Moreover, the unemployment rate for workers under 25 was a staggering 24.2% in April, and also inching up from the previous month. Southern Europe was even worse, with Spain registering general unemployment of 26.8% and youth unemployment of 56.4%.

The news out of Europe is not all bad, Adams points out. The inflation rate, helped by falling energy prices, was 1.4% in May, under the European Central Bank’s target of less than 2%. And, he says, “labor market liberalization, layoffs and austerity-related wage cuts in the crisis economises have lowered the ‘wage-price spiral’ price pressures that have historically kept inflation higher in the periphery Eurozone economies than in the core.”

But Adams observes that the labor market is "the part of the economy that European voters actually care about" and warns that the “euro crisis can’t be said to be under control until employment rates begin to fall, an event that is unlikely to occur before 2014.”

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