Behind Europe’s employment figures

6 Jan

Recent unemployment figures released by the German and Spanish governments have bolstered the idea of a two-speed Europe. In Germany, unemployment has fallen to a 20 year low whereas in Spain it has risen relentlessly for the fifth month in a row. In Germany, there are 2.976 million people actively seeking work. In Spain, the number of jobseekers has risen to 4.42 million. Spain’s population, at 46 million, is only a little over half that of Germany’s 81 million. And yet there are almost twice as many unemployed in Spain. As a proportion of the population, German unemployment stands at 6.8% where as in Spain the rate is just below 23%.

As with the trade figures, where repeated deficits and surpluses consistently divided the Eurozone area, unemployment figures seem to tell a similar story. Those economies with the lowest levels are Germany, Austria, Luxembourg and the Netherlands. The so-called PIGS – Portugal, Ireland, Greece and Spain – have some of the highest unemployment rates.

These figures have bolstered those claiming that tough labour market reforms are the best route out of the Eurozone’s doldrums.This claim is misguided for two reasons.

The first is that the nature of the economic difficulties faced by the German and the Spanish economies are fundamentally different. They may share the same currency but they live in different worlds. For Germany, a more challenging export environment has pushed businesses to make savings in an attempt at managing the downturn. These incremendal responses are evident in the way some employers have exploited the flexible labour market, by making some workers temporarily part-time. In Spain, the experience has been one of a massive bubble followed by a crash. This has been most heavily felt in the construction industry, where a house-building boom has given way to empty, half-finished building projects. Much like in Ireland, there is no soft way out of such a crash. Without the demand for homes, construction workers are laid off. Spanish and German unemployment figures reflect not just different regulatory environments for labour but also fundamentally different national economies.

Secondly, it is far from clear, as already commented upon by The Current Moment, that Germany’s labour market reforms are the best way forward for Spain. Whilst unemployment may be low in these Northern European economies, this is because of much greater flexibility enjoyed by employers. Both Germany and the Netherlands have a very high proportion of contracted workers i.e. workers on fixed contracts that have to be renewed every 6 or 12 months. German businesses have also used various strategies – such as a reduction in working hours agreed upon by managers and workers, known as the Kurzarbeit scheme – aimed at maintaining employment levels whilst introducing savings on labour costs for businesses.

Rather than reinforcing stereotypes about successful Northern European economies and failed Southern Mediterranean economies, these figures should push to think about our goals are when we speak about employment. Is it better to maintain employment levels at all costs or should we also think about the quality of the job and the nature of the employment contract? To rely on contracted workers may provide employers with the flexility to cut working hours or shed labour when necessary and helps them escape costly social charges associated with granting indefinite contracts to workers. But if the value of work is to be judged by its connection to an idea of individual self-realisation, then the nature of the job matters enormously. The reliance on contracted labour reduces the incentive for the employer to invest in its staff. The subjective experience of overcoming difficulties, improving oneself and acquiring new skills – all of what produces the connection between work and an individual sense of freedom – is limited by more flexible kinds of working contract.

For employers, there is a downside to individuals realizing themselves through work. More confident and assertive workers are likely to be more militant and more likely to contest the authority of employers and seek better conditions and higher wages. As we have noted before, this fact help explains why jobs programmes as a way of boosting a recession-hit economy are not popular amongst many businesses and politicians. The nature of employment is therefore also a political matter, one that mediates the relationship between workers and business and that – over the medium to long term – goes a long way to shape the kind of society we live in. In the discussion about employment levels in Europe and beyond, what is important is not just jobs for all but also the kind of work that maintains a relationship between labour and freedom.

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4 Responses to “Behind Europe’s employment figures”

  1. Jorge Sola January 8, 2012 at 10:27 pm #

    I totally agree with the main idea, but I’m not sure if I rightly understood this part:

    “Whilst unemployment may be low in these Northern European economies, this is because of much greater flexibility enjoyed by employers. Both Germany and the Netherlands have a very high proportion of contracted workers i.e. workers on fixed contracts that have to be renewed every 6 or 12 months.”

    In Spain, since the 90s, around a 30% of the labor force has a temporary or fixed labour contract, and such flexibility has not even helped to solve or mitigate the unemployment problem (quite high even during the housing bubble).

    • The Current Moment January 13, 2012 at 4:15 pm #

      That’s a very good point, Jorge. In Spain’s case, the main factor is the collapse in the construction and housing bubble that had been fueling the economy int he 2000s. The specific degree of labour market flexibility has little bearing on that fact. In Germany’s case, it’s labour market flexibility has served well in helping it keep up employment levels during the downturn. The main point about Spain and Germany is that though they share a currency, they don’t share much else.

  2. Chris January 11, 2012 at 8:57 pm #

    Indeed. It’s also worth nothing that the German “employment miracle” has been driven to a large extent by significant declines in workers’ bargaining power vis-a-vis their bosses, as evident in the declines in unionization and collective bargaining coverage in recent years, as well as a dramatic expansion of the German low-wage sector through things like “mini-jobs.” Real wages in Germany have declined over the last decade, and there is still no statutory minimum wage in the country. Close to a quarter of German workers fall into the low-wage category, almost as many as here in the US. It’s no model for anyone to follow, unless of course you want to increase economic growth by kicking workers in the teeth.

  3. Real-Estate Insider January 16, 2012 at 11:26 am #

    “increase economic growth by kicking workers in the teeth.” That’s exactly what the Spanish government do towards entrepreneurial individuals who want to help themselves by starting their own business or becoming freelance.

    If you wanted to do that you would be charged a “self-employment tax” of around 260 euros per month, regardless of earnings. So if you become self-employed today you will not only have to pay income tax and social security on your earnings you will have to pay the 260 euro fee ON TOP! Even if you earn not a single penny you will still have to pay. I don’t know of a single other country that does this.

    So for many people it’s just not worth bothering to try, especially when you read my second reason.

    Unemployment benefit in Spain is ludicrously high in most cases. I know people who are getting over 1,000 euros per month, for many months. Many of these people know full well that they are far better off on the dole than they would be working a minimum wage job (minimum wage in Spain is around 650 euros p/month).

    The government needs to reduce the benefits paid to the unemployed and give them more encouragement to get back to work. 53% of workers in Malaga earn less than 1,000 euros per month. How is it that the unemployed are better off than the employed?

    What would you rather do – earn 1,000 for sitting on the beach in the sun all day or get the same 1,000 for working a 40 hour week?

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