Unhealthy Developments Across The Euroarea Labor Market

Includes: EWP, FEZ, FGM, FXE
by: The Wilder View

There are many ways to define rebalancing within the euroarea: relative prices, trade, productivity, unit labor costs, etc. I'd argue that one could see it in the employment data as well, although it will take a long time to work its way through. Basically, Spaniards should move to Germany and vice versa to enjoy higher income and lower input costs, respectively, when looking for work or planning a business. Well, a lucky 5,000 young Spaniards will get the chance for apprenticeship in Germany thanks to a recent deal between Germany and Spain. But with 770,100 Spaniards aged 15-24 unemployed in Spain, 5,000 German jobs is not going to go very far. So what's happened to date?

Eurostat released its annual detailed report of the labor force in Europe. I dug around a bit and found some interesting stats. The gist of what I found is the following: Employment in the periphery markets has plummeted with no seeming end in site. Notably, 2012 employment levels in Portugal and Greece are 299,000 and 356,000 lower than their respective 2000 levels.

Since 2009 (the end of that recession), out of the EA11 (EA 12 less Luxembourg) 1.7 million jobs have been added regionally, while 3.2 million jobs have been lost. The balance is wholly uneven and skewed toward job loss. I expect this pace to pick up, as hoarding runs its course.

Since 2009, five countries added jobs with the heavyweight, Germany, accounting for 84% of the new jobs, while six countries cut employment with Spain accounting for 50% of that. Interestingly, the Italian labor market has only seen 169,000 jobs lost since 2009, despite seeing seven consecutive quarters of negative GDP growth as firms presumably hoard workers. Given the downbeat outlook for Italy, the employment statistics are likely to worsen materially in coming quarters.

Since 2000, the composition of employment in the euroarea has shifted from craft, clerical support, and plant operators to service and sales, technician and associate professionals, and professionals across all countries with no obvious bias in the periphery over the core.

I thought that this was interesting: I had expected a sharp increase self-employment as a share of total employment in the periphery economies, as the governments layoff workers and firms de-lever. This trend is only in its nascent stages. The trend of rising self employment is there in Greece and the Netherlands (the Netherlands labor market is bleeding -- see table above), but maybe only just beginning in Spain and Portugal. This could be the first official data that indicate growing shadow economies.

I see unhealthy developments across the euroarea labur markets -- developments that are not truly indicative of "rebalancing."