Global Daily – Why Eurozone unemployment is higher than it looks
Euro Macro: Eurozone labour market distortions remain – Eurostat published its second estimate for Q1 GDP today, as well as the first estimate for employment during that same quarter. GDP growth was unchanged from the first estimate of -0.6% qoq, while the change in employment was reported at -0.3% qoq. The changes in employment and GDP fit well into the historical relationship between employment and economic activity.
Indeed, labour productivity declined modestly in Q1, which usually happens when GDP contracts as the labour market tends to react to changes in economic activity with a delay. However, in contrast to the normal historical pattern, the decline in employment went hand in hand with a decline in unemployment. Indeed the number of employed fell by 475 thousand qoq in Q1while the number of unemployed fell by 257 thousand. This implies that labour market participation fell considerably during the first few months of the year. This drop in participation will probably be reversed in the coming quarters, implying that employment and unemployment could each rise, similar to what happened in 2020Q3.
Eurozone employment and unemployment
Source: Eurostat, Refinitiv, ABN Amro Group Economics
Another sign of distortions in the labour market is that companies still make wide use of government subsidised short-time work schemes (STW). Government subsidised STW is designed to allow companies to temporarily reduce the number of working hours of employees (often to zero) while keeping them on the payroll. In Germany 2.7 million people were in STW in March, down from 2.9 million in February. As a percentage of employed people the share declined to 8.0% in March, down from 8.7% in February. In France 2.3 million people were in STW in March, up from 2.2 million in February. As a share of employees it increased from 11% in February to 12% in March. As can be expected the majority of people in STW can be found in the services industry. For instance, in Germany more than 50% of employees in hotels and restaurants are in STW and in France even 77%. In Germany’s industry STW use was still was 6.3% in March (down from 7.1% in February). In France around 10% of all industrial workers still were in STW in March (18% in the car industry and 9% in other industry). The STW reports for Germany and France suggest that the full-time equivalent of the use of STW is roughly half of the number of people in STW. In the hypothetical case where all the people in STW (full time equivalent) would have become unemployed, France’s unemployment rate would have been around 11.8% in March instead of the 7.9% that was reported and Germany’s unemployment rate would go up to 7.7% instead of 4.5%. Although the majority of the people in STW should return to their normal jobs when the STW schemes are unwound, the wide use of the schemes in sectors that are have not been hindered by lockdowns since the first half of 2020, suggests that a proportion of the people in STW will become unemployed. (Aline Schuiling)
People in STW, % employees
Source: Ifo Institute, Dares