May 25, 2017
The ECB is concerned about eurozone unemployment
The ECB's latest economic bulletin contains two articles on unemployment in the eurozone, one on youth unemployment and another on assessing the labour market slack, which make for sobering reading if one feels that the eurozone is on a track of steady economic recovery.
As the bulletin stresses, long-term unemployment has a scarring effect on workers, but this is especially severe when it happens at the start of one's career. This is why youth unemployment should be a particular cause for concern. Youth unemployment peaked in 2013, and has been declining since while the ratio of the youth unemployment rate to overall unemployment has remained stable. Commenting on these observations Bill Mitchell notes that the stable ratio of youth to overall unemployment implies that the problem is not with the youth jobseekers, but that there is a systemic shortage of jobs that affects younger and older workers alike.
On labour market slack, the bulletin notes that restrained wage growth would be a prima facie indicator of substantial unutilised labour resources, even as unemployment is on the decline. The focus on wage growth links this with Mario Draghi's comments at a recent ECB monetary policy press conference that in order for inflation to be sustainably on target wages need to grow more strongly. The bulletin argues that to understand the observed wage moderation one has to look at broader measures of underemployment rather than just at the headline measure of unemployment, which is rather narrowly defined. Over 3% of the eurozone working age population is "marginally attached", meaning they are categorised as inactive, while in reality they are seeking work but not with sufficient intensity to be classified statistically as part of the active population. Another 3% of the population is underemployed in the sense that they are working fewer hours that they would like, for instance because they have a part-time job when they would prefer a full-time job. Combining these estimates with the headline unemployment rate of under 10% results in an estimate of broad unemployment at about 18% of the labour force.