ECB says broad rate of Eurozone unemployment in 15% - 18% range
The European Central Bank on Wednesday in its monthly Economic Bulletin highlighted a study which shows that unemployment in the Eurozone is worse than official data suggest. The broad rate of unemployment is in the 15% - 18% range. On Tuesday Finfacts reported that the Irish rate was 15% compared with the official rate of 6%.
The new measure of what the ECB calls "slack" in the workforce is almost double the official rate of 9.5% (down from 12.3% in March 2013) and it includes part-time underemployment (people who are seeking more work hours) and estimates of inactive people who give up job searching, called the "potential labour force."
The central bank is concerned that wage growth remains subdued with Germany being the only big economy exhibiting labour tightness.
Wage growth has also been slow in the US and until recently inflation-adjusted average UK wages had fallen in a decade for the first time since the 1860s.
There is an argument that globalisation and technology have eroded workers’ bargaining power. “There is more polarisation in the labour market, with a significant fraction of the workers in intermediate jobs and lower [skilled] jobs, having very little voice in terms of pushing for higher wages,” said Stefano Scarpetta, director of employment, labour and social affairs at the OECD, to The Financial Times.
“In France and Italy broader measures of labour market slack have continued to increase throughout the recovery, while in Spain and in the other euro area economies they have recorded some recent declines, but remain well above pre-crisis estimates,” the ECB article says.
The central bank says that overall, the “employment-rich” recovery "has led to an increase in the number of persons employed of just under 5m since the middle of 2013, offsetting virtually all of the employment losses seen over the crisis period.
The ECB says adjustments to the broader measures to deduct the very long-term unemployed and to allow for the time that the underemployed spent working still result in estimates of labour market slack of the order of 15% across the Eurozone in the final quarter of 2016 (on a four-quarter moving average basis).
The study finds that 3.5% of the Eurozone’s working-age population are "marginally attached to the labour force” comprising both (i) those who are not currently seeking work, despite being available (mainly “discouraged” workers; and (ii) those who are actively seeking work, but are not (yet) available to begin work (maybe because they have received a job offer with a start date some time in the future or because they are not able to start work within the next two weeks).
In addition, a further 3% of the working age population are currently underemployed (i.e. working fewer hours than they would like).
Currently there are around 7m underemployed part-time workers across the euro area – an increase of around 1m since the start of the crisis. The number has declined only slightly in the past two years.
Part-time and temporary employment has risen by almost 4m since the financial crisis even though total employment has not increased.
Combining the estimates of the unemployed and the underemployed with the broader measures of unemployment used in the US and by the OECD, suggests that labour market slack currently affects around 18% of the Eurozone extended labour force.
The Eurozone estimate likely should be higher as we have included workers in government employment schemes in our 15% Irish estimate — it's misleading to include them in the official rate as employed.