The eurozone crisis has pushed Europe deeper into recession, which is now slowing the global economy, the Organisation for Economic Cooperation and Development said in presenting its revised forecast for the year.
G7 economies are expected to grow at an annualised rate of just 0.3% in the third quarter of 2012 and 1.1% in the fourth, the Paris-based OECD said yesterday (6 September).
OECD cut its forecast more sharply for eurozone countries: Germany, to 0.8% from 1.2%, saying the bloc's debt crisis was increasingly weighing on core economies. Italy's outlook was even more grim, with its forecast slashed to -2.4 % from -1.7% in May. France's estimate was cut to 0.1% from 0.6%.
“The slowdown will persist if leaders fail to address the main cause of this deterioration, which is the continuing crisis in the euro area,” said Pier Carlo Padoan, the OECD’s chief economist.
OECD deems that one of the main causes is the persistent decline in consumer confidence linked to persistent unemployment.
“Mass unemployment is a dramatic phenomenon,” said president of the European Council Herman Van Rompuy, addressing the conference Jobs for Europe in Brussels. “It is impacting the political landscape and political stability. Employment is not an intermediate goal of our policies. It is the ultimate goal.”
Between 2008 and mid-2012, the EU-27 unemployment rate climbed from around 7% to 10.4%, or 25 million unemployed, and in the euro area this is 11.2%, or nearly 18 million people. More than one out of every five youngsters seeking a job cannot find one.
Employment has also become more precarious: nearly 94 % of jobs created in the 15-64 age group in 2011 were part-time; and 42.5 % of young employees are on temporary contracts.
Long-term unemployment has risen to over 10 million people in 2011, and the number of people at risk of poverty or social exclusion in the EU has risen to 116 million. “That brings higher risks of marginalization, poverty and mental health problems,” said Angel Gurria, OECD secretary-general, speaking in Brussels.
Even though the crisis has taken a toll on jobs in Europe, there are other causes and Brussels is well aware of it.
International competition from well-educated labour forces in emerging economies is forcing European to adapt and to improve their qualitative competitiveness, said Van Rompuy, adding that reforms do not go against solidarity, but are rather the only way to secure it for the future.
Job-rich recovery and more
Giving its recipe for a dynamic labour market to pull Europe out of recession, Nobel Prize-winning economist Christopher Pissarides said the EU should not just focus on job-rich recovery, as it did in its employment package last April.
The package’s proposals focus on the demand side of job-creation, setting out ways for member states to encourage hiring by reducing taxes on labour or supporting business start-ups more. "These are good as anti-recession policy,” Pissarides said, adding however that countries should not rely too much on it for sustained output growth.
The economist also said that the Commission’s emphasis on the green economy, health services and ICT is short-sighted. Green jobs and ICT will not increase net jobs by much, he said, explainin that ICT is too small and green jobs will destroy “dirty jobs”. Most employment shortfalls in Europe are in other service sectors: education, retail trade, transport and health services.
Minimum wage level and work-based learning
In many of those sectors, the minimum wage level becomes crucial. Pissarides insisted that Europe needs to keep low minimum wages as an incentive for entrepreneurs to create new jobs.
OECD’s Gurria concurred: “This is a paradox if you put those minimum wages too close to the average wages, you keep the incumbents in and the new entrance out. Who are the new entrants? The youth. You dampen the appetite for entrepreneurs to create new jobs,” he said.
Work-based learning schemes and apprenticeships are one way to bridge the gap between education and employment, as underlined by UEAPME, the employers’ organisation for smaller businesses.
Italy’s region Tuscany managed last year to give training and work to 35,000 of its 53,000 unemployed young people, in a joint effort between local authorities and companies. Half of the young people participating in the programme have been confirmed and managed to get a full-time permanent job.
“This is the clear demonstration that young people given a minimum of rules and dignity won the challenge and convinced their bosses that the company could not do without them,” said Enrico Rossi, president of Tuscany.
Italy has just passed a labour reform, resting on five pillars which includes entry flexibility in work market.
"Apprenticeship has been identified and strongly supported as the main path to enter the labour market with the aim of fostering competent, skilled and more productive workers and more stable employment relationships," explained Elsa Fornero, Italy's minister of labour, stressing that Germany and Italy have set an agenda for experience sharing and common efforts, also aiming at international mobility of our youth.