EU Unemployement: Declining, but dependent on labour mobility
Brussels February, 9th 2017
Britain’s exit from the EU could slow down Europe’s economic growth. However, unemployment forecasts remain positive. The latest Eurostat figures show that the number of jobless has been steadily declining. Towards the end of 2016, record employment levels were reported in Germany and the Czech Republic. Britain, contrary to expectations, is doing well, too. However, the situation is not uniform, across the bloc.
However, the situation is not uniform, across the bloc. Unemployment is still a major problem in the southern EU, though, where it rises into the double digits.
The European Union has faced one fundamental challenge after another over the last ten years. As soon as it overcame the financial crisis of 2007–2008, caused by a mortgage bubble in the US, there was the eurozone crisis of 2011–2013, due to high debt in Greece, Italy and other countries, followed by the refugee crisis of 2015–2016.
With the exception the refugee crisis, all of the last decade’s crises strongly affected the European Union’s economic growth, increasing unemployment.
At the beginning of 2017, the EU is facing other economic challenges. Primarily it is the unpredictable policy of US President Donald Trump. Among other things, Trump wants to withdraw from the Transatlantic Trade and Investment Partnership (TTIP). The economic consequences of Brexit will also certainly play a negative role.
Therefore, last November the European Commission estimated this year’s economic growth in the EU to only reach 1.5%, and the estimated figures are also very similar (two-tenths of a per cent higher) in 2018. Unemployment estimates, however, are positive.
“I consider the impact of the potential rejection of the TTIP by the US administration to be a significant risk factor,” says Czech economist Petr Zahradník. “Especially by thwarting developmental opportunities that could lead to the emergence of new jobs. Although the labour market in the EU has improved quite considerably over the last year, there are still many countries with high double-digit unemployment rates,” adds Zahradník.
According to the data released in January by Eurostat, these include primarily Greece (23.1%), Spain (19.2%), Cyprus (14.2%) and Italy (11.9%). The opposite end of the list features the United Kingdom (4.8%), Germany (4.1%) and the Czech Republic (3.7%), which currently has the lowest unemployment in the EU.
Hard or soft Brexit?
The United Kingdom is gradually leaving the European Union. However, this will strengthen the influence of Germany, which will determine the economic development of the Union even more significantly than before.
For this year, German forecasts expect a slight decrease in the growth rate, from last year’s 1.6 to 1.4%, as a result of the expected decline in exports to the British Isles. However, the general mood is optimistic in Germany. Analyses point to high household consumption and a long-term decline in unemployment.
According to the data from the Federal Statistical Office announced on 2 January, compared to 2015, the number of employed people last year increased by 425,000 to 43.5 million, which is the highest number since the reunification of Germany in 1990.
Economists, therefore, mainly focus on Britain’s exit from the EU and its impact on unemployment in Europe in the coming years.
“Brexit will be the reality that will weaken the previously strong relations between the UK and the EU. It will also have an impact on unemployment,” points out economist Zahradník. “Especially if the current option of hard Brexit is used, which is preferred by the current British government. This will return relations with the EU to the beginning, and the UK will be an ordinary third country against which Brussels might impose duties, non-tariff barriers, etc.,” adds Zahradník.
With Britain, the gross domestic product (GDP) of the eurosceptic EU countries that did not want to join the common currency, the euro, represented roughly 30% of the EU’s economic performance. After London’s exit, it will only be 15%. And Germany’s share will rise from the current 20% to a quarter.
“The exit of a member state will be a completely new experience for the EU. Much will depend on the interest of both partners to agree on the best solution,” says Czech ANO MEP Martina Dlabajová (ALDE).
Inexorable demographic development
Estimates of unemployment in the coming months and years vary widely within both individual countries and institutions that deal with economic development forecasts.
According to the information from the German Federal Labour Office, the number of unemployed people will fall this year by 70,000 to 2.6 million people. And the number of jobless people will continue to fall. Demographic development in Germany (as in all post-communist countries, by the way) is inexorable.
In Germany, the number of people of working age will have fallen by 6 million to about 40 million by 2030, while the number of unemployed will have dropped by half to approximately 1.7 million people compared to 2010.
Therefore, the government in Berlin is already preparing different scenarios of how to deal with adverse demographic trends. On the one hand, it is addressing the requirement to limit the number of immigrants from third countries who will be allowed to stay in Germany to two hundred thousand people a year. This limit is required in the current debate on the impact of the refugee crisis by the CDU/CSU part of Germany’s governing coalition.
However, the limit would tie the hands of German companies, which according to estimates each year need to accept about half a million more people than the number currently present in the country. Without them, they will not have enough workers, particularly in technical fields. In some federal states with higher economic growth, like Bavaria, the labour shortage is especially acute.
The number of jobless should also continue to fall in Benelux and the Nordic countries, despite the fact that their governments have taken tens of thousands of refugees in recent years, such as Sweden.
However, economists still do not dare confirm the long-term decline in unemployment for the entire EU. “The impact of the demographic development on labour supply is obvious. I agree that the workforce will not grow in absolute terms. But, due to a record increase in labour productivity, we can expect pressure on some existing jobs, as well as the cancellation or a substantial reduction of these jobs,” says economist Petr Zahradník.
The spectre of unemployment has disappeared in the UK
Despite the catastrophic scenarios that emerged before the British referendum on secession from the EU, unemployment also fell in the United Kingdom after the June referendum, which was won by Brexit supporters. At the end of 2016, the number of jobless in the UK reached an eleven-year low.
“The debate about Brexit mixed mobility of EU citizens, which could not be regulated very much by Britain, and the mobility of citizens of non-EU countries,” points out Ivo Šlosarčík of Charles University, in Prague. “This is where London has quite strong powers, deciding, among other things, on the issue of primary work permits.”
Although estimates say that unemployment in the UK could rise again in the coming years (to approximately 5.4%), this figure will still be well below the EU average. This means that the main argument of Brexit supporters, namely that the influx of workers from new EU member countries (mainly from Poland) threatens the labour market in the UK, hasn’t been confirmed.
The same applies to the current wave of immigration from Arab and African countries. Refugees will find jobs primarily in unskilled and lower-paid professions, not sought by their critics. However, the problem remains that the number of migrants accepted significantly exceeds demand in these professions.
“If the influx of a workforce from non-European regions was only based on the labour market, meaning that adequately qualified staff would move to positions from their home countries to Europe due to a much more interesting salary, everything would be fine,” points out Zahradník. “However, the current waves of migration were completely spontaneous and they definitely didn’t respond to any specific demand,” he adds.
“Migration can bring a lot of positive things to the European labour market,” Czech MEP Dlabajová replies. “The situation will be significantly facilitated by the Blue Card, which records expertise and skills for people coming from third countries,” he adds.
A major problem for the EU remains the uneven development of unemployment in different parts of the EU. The south still has unemployment several times higher than in Central and Northern Europe. Besides Greece, Spain, Italy and Cyprus, Eurostat also registers a high number of unemployed people in Croatia (11.4%) and Portugal (10.6%), although even in these countries unemployment has been declining slightly over the last two years.
“What is important for the European labour market is migration between member states,” stresses Dlabajová. “Job mobility is still very low. Yet it is one of the ways to solve the significant differences in national unemployment,” says the Czech lawmaker.
“An important issue is the question of solidarity within the EU,” adds Šlosarčík. “So far, the debate has mainly been about transfers in the social system. However, now it is important not to open the Pandora’s box of whether it is possible to restrict job mobility or student mobility itself. That would mean a crisis for European integration.”