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No Trend Reversal in Labor Markets in 2013 – Part I

Labor market in EuropeThe labor market conditions in the EU and the euro area have continued worsening since the end of 2012 on the back of weak economic activity and ongoing labor market adjustments in several euro-area Member States. Joblessness has steadily increased in the last two years, with the unemployment rate in February registering new all-time highs in both the euro area (12.0%) and the EU (10.9%).

At the same time, the divergence in the labor market performance across Member States has reached an unprecedented magnitude.

The EU labor market is marked by significant labor shedding and insufficient job creation since the third quarter of 2011, when the recovery on the job market ground to a halt. In line with the sharp GDP contraction at the end of 2012, headcount employment dropped in the final quarter of 2012 (by 0.3% in the euro area and by 0.2% in the EU).

For 2012 as a whole, total employment declined by 0.3% in the EU and by 0.9% in the euro area. Employment losses in 2012 were concentrated in industry, construction and public administration, resulting from employment cuts in the public sector and reallocation of labor across sectors in some Member States. Given the still-low level of hours worked after the large drop during the 2008-09 recession, headcount employment has recently been affected much more strongly by the economic downturn.

The labor supply in terms of total labor force grew strongly in 2012, by around 0.7% in the EU and 0.6% in the euro area, after 0.2% and 0.3% respectively in 2011. Rising activity rates partly reflect pre-crisis trends of increasing participation rates of female and older workers. But policies recently undertaken at the Member-State level, notably pension reforms, intensified this trend together with cyclical factors. In particular, second earners of given households seem to have been entering the labor market to counteract households' reduced income expectations.

Looking to the near future, the EU labor market is expected to weaken further, reflecting the usually delayed response to changes in economic activity. The latest readings of European Commission surveys suggest a deterioration of the labor market conditions with additional job losses and rising unemployment in the short term.

In March 2013, employment expectations in the EU remained below their long-term averages in construction and, albeit to a lesser extent, in industry and services. Companies' intentions to reduce staff were also mirrored by strong unemployment fears among consumers, which remained far above their long-term average.

However, temporary employment has started growing again since the second quarter of 2012, indicating companies' cautious hiring policy which reflects the widespread uncertainty on the strength of the prospective recovery. Overall, employment is projected to decrease by ½% in the EU and by ¾% in the euro area in 2013, while the unemployment rate is set to climb higher in the euro area and the EU and to remain at elevated levels over the forecast horizon.

Read also: No Trend Reversal in Labor Markets in 2013 – Part II

Unemployment Rate in Europe (datas of April, 2013)
Unemployment rate in Europe

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