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Long-term unemployment in the EU becoming a structural problem for southern states

Long-term unemployment has become a fundamental problem for the European labour market since the financial and debt crisis. Of the 22 million unemployed workers in 2015, nearly half (48.2 percent) had been without work for more than twelve months and almost a third for more than two years. These figures emerged in a study commissioned by the Bertelsmann Stiftung based on data from the European Union Labour Force Survey (EU LFS). Particularly in the southern EU states like Greece, Spain, and Croatia, long-term unemployment is still alarmingly high eight years after the start of the crisis. Indeed, the study shows that the extent of the unemployment crisis is actually significantly greater than is suggested by the figures for long-term unemployment.

The study results show that there is a clear north-south divide. While across the EU as a whole, 4.3 percent of the labour force is unemployed over the long term, the figures for Greece (17.7 percent), Spain (10.8 percent), and Croatia (10.4 percent) are significantly higher. Long-term unemployment is lowest in the UK (1.5 percent), Sweden (1.5 percent), and Luxembourg (1.6 percent). In the southern states in particular, long-term unemployment is attributable to the financial and debt crisis: across the EU, the unemployment rate is almost twice as high as before the crisis (2008: 2.5 percent). While long-term unemployment is most prevalent among low-skilled workers in almost every country (EU average: 5.9 percent), in Greece, Spain, and Croatia, long-term unemployment also affects more than 10 percent of workers with mid-level qualifications and in excess of 5 percent of highly qualified individuals. “Long-term unemployment has become a mass phenomenon in certain countries and poses a threat to Europe’s economic recovery. Long-term unemployment does not only affect public finances; it also has a negative impact on those people who are left without prospects for too long and who therefore lose faith in the government and the market economy,” Aart De Geus, Chairman of the Bertelsmann Stiftung, explains.

Long-term unemployed not the only ones excluded from the labour market

To demonstrate the full extent of the unemployment crisis in Europe, the study also includes figures for so-called hidden long-term unemployment. This includes, for example, jobseekers who are not considered to be unemployed because they are participating in labor market measures and those who wish to work, but are no longer actively seeking employment, having been discouraged by their failed efforts. Across the EU, 4.3 percent of the working age population make up these “hidden reserves,” which is greater than the number of long-term unemployed workers (3.8 percent of the population of working age). Hidden long-term unemployment is particularly high in Italy. Here, 9.1 percent of the working age population are willing to work, but are not included in the unemployment figures. This means that, together with the long-term unemployed, 13.3 percent of the working age population in Italy is consistently without work. This figure is almost as high as in Greece (15.6 percent) and Spain (14.3 percent).

Despite the poor state of the labour market as a result of the crisis, the willingness to work among inactive populations has increased in the EU. In 23 out of 28 EU countries, the proportion of inactive persons with no desire to work declined between 2008 and 2014, especially among women and older workers. Among other things, this is due to the social consequences of the crisis: more and more women want to work and contribute to the household income. Aart De Geus: “More than 22 million people in the EU would like to work, but cannot seem to get a foot in the door. It’s high time the politicians did more to exploit this untapped potential.”

Mismatch between supply and demand in the labor market

The study found that a key reason behind the ongoing unemployment crisis is the impact of the financial and debt crisis on the labor markets in southern Europe. In addition to the strong employment slump, the crisis also highlighted serious structural weaknesses in the economic models of the southern states. Real wages have declined significantly since 2010, and extensive labor market reforms were introduced in most countries. Yet employment recovery has been far too weak so far to significantly reduce long-term unemployment. One reason is that, in many countries suffering from particularly high rates of long-term unemployment, there is a growing mismatch between supply and demand in the labor market. Labor-intensive sectors such as industry and construction were particularly affected by the crisis. The workers who were laid off in these sectors now lack the skills necessary to find work in other industries, for example in the service sector. What’s more, a lack of training and further education measures only exacerbates their inability to adapt.



Unbalanced austerity policies threaten to cement long-term unemployment

A fundamental prerequisite for the high rates of long-term unemployment to be reduced is a greater demand for labour by employers. The Bertelsmann Stiftung experts recommend that, to achieve this, a mix of growth-oriented investment and active labor market policy measures be adopted. Spending on active labour market policies like job intermediation services, vocational and further training, and hiring incentives for companies is especially low in the countries with particularly high long-term unemployment and, in some cases, has declined even further due to the austerity policies adopted in recent years. Yet without this support, many of the long-term unemployed have few prospects of new employment. The creation of effective public employment services that assist jobseekers early on and with intensive support is therefore also a necessity.

This study was produced by Economix Research & Consulting on behalf of the Bertelsmann Stiftung. It is based on the data of the European Union Labour Force Survey (EU LFS) and other comparable Europe-wide surveys. The harmonized unemployment rates for the EU member states are based on the ILO definition of unemployment and may differ from national registered unemployment statistics. The study examines the development of long-term unemployment and inactivity since 2008 in all 28 EU member states, the structure and causes, as well as active labor market policies to combat long-term unemployment.

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