I would like to take a look at unemployment and
to be more specific, at unemployment among people of a relatively lower
education level, mostly during the 00s. The reason is simple. The Euro Area’s
economy seems to be getting more and more geared towards activities that
require workers to have acquired a higher education level and there is the
distinct risk that people of lower education will get excluded.
There are a number of secular trends at work
here that make up the current picture of employment/unemployment in the Euro
Area.
One of them is deindustrialization. Some people
claim this is due to outsourcing or delocalization of activities in lower-cost
countries. I think that this is indeed happening but to a much smaller degree
than conventional wisdom wants it to be and that most of the
deindustrialization we are witnessing is due to the closing down of firms in
the sector (for a number of reasons) or the increased automation/mechanization
of production processes at the plant level. What’s more, in the remaining
activities, at least in some Euro Area countries (not in my native Greece),
there is a shift towards high or medium-high technology manufacturing. Finally,
due to the new technologies, production processes is possible to be dissected
with certain parts of them, mostly those that require less skilled labour,
being moved to lower-cost settings. Of course this being a world under constant
change, more and more parts of processes that require more skilled or better schooled
labour are possible to be delocalized.
Here’s the chart showing unemployment in the
Euro Area by educational level.
source: Eurostat |
Of course, as with all aggregate figures this
is disguising some considerable disparities among EA countries.
I would like to approach the issue not from a
regulatory angle but from a sectoral angle, i.e. which sectors absorbed
unemployed workers with lower education and which ones shed workers during the
current depression. My working hypothesis is that lower education workers are
mostly employed in manufacturing, construction and wholesale and retail trade,
transport, accommodation and food service activities. To make things easier,
from now on, I will call the last sector as retail trade. Here we go.
There may be some considerable differences
among EA countries labour markets but they share some common characteristics.
The first one is deindustrialization that translates into the manufacturing
sector shedding workers and the second one is that the sectors that absorbed
unemployed workers of a lower education were construction and retail trade. I
would like to try and group EA countries into some distinct classes.
The first one includes those that underwent a
credit boom which morphed into a construction boom (I won’t characterize those
booms as bubbles or not), hence saw a considerable spike in construction
employment. Another common feature members of this group share is that after
their respective property crush occurred, unemployment went through the roof.
One of them is Ireland.
source: Eurostat |
As we can see in the chart when, manufacturing
employment was stable and employment in retail trade (etc.) and construction
was growing, unemployment was falling. When manufacturing employment started to
fall, despite the strong growth in retail trade and construction, unemployment
among workers of lower education remained broadly stable. One explanation I can
think of is that many ex-workers that had dropped off the labour force came
back and tried to get a job or that new jobs required more skills. When the
crisis hit Ireland like a ton of bricks and all sectors pictured laid-off
workers, the unemployment rate increased almost four-fold.
Another one belonging in this class is Spain.
source: Eurostat |
The story here is pretty much the same with
Ireland except that manufacturing employment decreased only marginally as the
00s progressed, hence, unemployment eased a little bit further. Maybe after a
while jobs created by the retail trade and the construction sector are not as
suitable for workers with a lower education background (or maybe unregistered employment and a possible inflow of immigrant workers played a role here). Unfortunately I do not
have such detailed data on the subject to delve deeper here.
source: Eurostat |
Finally, here’s Estonia, that also went through
a building boom. The unemployment rate here decreased significantly during the
00s, as it seems that a bigger number of lower education workers were absorbed
by construction and retail trade. An explanation could be that the relevant
sectors in Estonia were less sophisticated (than their counterparts in Ireland
and Spain) so workers were more suitable for alternate employment here.
The second class is made up from countries that
didn’t experience a construction boom, hence the unemployment rate there
remained mostly unchanged.
One of them is Belgium.
source: Eurostat |
Just before the 00s rolled in there was a
substantial drop in unemployment among workers with a lower education
background. During the 00s though, manufacturing employment decreased steadily
bringing the relevant unemployment rate at the level it stood at the beginning
of the decade.
The next one is Austria.
source: Eurostat |
During the decade, employment in all sectors
featured in the chart was broadly unchanged and unemployment among workers with
lower education, remained in a 6%-8% range without any significant moves.
I will include Netherland here too, that like
Belgium experienced a sharp drop in unemployment right before the 00s, and then
moved in a range during the decade. The crucial difference among the two cases
is that the level of unemployment in the Dutch case is half that of Belgium.
source: Eurostat |
A third class would have to include countries
where the relevant unemployment rate increased after the crisis broke out but I’m
skeptical whether the rate will indeed remain lower than the level it stood
before the 00s.
The first one here is France.
source: Eurostat |
As we can see in the chart employment in
construction and retail trade hasn’t budged since the crisis erupted and the
spike in unemployment can be attributed solely to the decrease in manufacturing
employment without growth in some other segment this time to square things off.
With growth this low I somehow doubt it that employment will remain
unchanged in construction and retail trade.
The next stop is Italy. Unemployment in Italy
is lower than France, mostly due to the fact that the pace of deindustrialization
is slower here (at least employment-wise). Again, construction and retail trade
haven’t shed any workers and I find it hard to believe that his will continue
to be the case in an environment of recession or stagnation if one is very optimistic.
source: Eurostat |
We’re done with the countries that can be
classified in distinct categories, so here come the “special” cases.
The first one is Portugal.
source: Eurostat |
In Portugal, during the 00s the construction
sector was in constant retreat and with the manufacturing sector shedding jobs all
through the decade, the unemployment rate steadily increased.
Now let’s take a look at Finland.
source: Eurostat |
After a fierce crisis in the early 90s, unemployment
in Finland went vertical. But Finland is one of the few countries that managed to
turn the tide and reindustrialize in the 90s. As a result, along with robust
increases in construction and retail trade employment, the relevant
unemployment rate fell from above 23% in 1995 to 12,8% in 2008. After the crisis
broke out though, unemployment increased on across the board lay-offs. The
relevant unemployment rate at almost 17% is rather high even for Euro-Area
standards.
Finally, here’s Germany.
source: Eurostat |
Germany is the only country in the Euro Area
that the relevant unemployment rate is in a downward path since 2006. It still
is rather high, standing at about 15%. Workers with a lower education
background were not absorbed by construction or retail trade in this case.
Unfortunately, more detailed data are needed here to produce an explanation,
something that I don’t possess.
The post is already too long, especially for
summer reading material (although admittedly there’s nothing normal about this particular
summer), so let me wrap this up. If one conclusion can be reached, it is that
despite differences in local employment markets one common theme can be
discerned: unemployment among workers with a lower education attainment is
rather high in the Euro-Area. The reasons that brought unemployment down during
the 00s are not in place anymore (in most cases) and no one
should have thought them to be sustainable. This can only mean one thing,
the Euro-Area needs a new growth model since this one’s definitely broken. What's more, in a time that the welfare state European model might come under pressure this will only serve to put more pressure on it. When
a whole category of people are excluded from the labour market, this can spell
trouble in a whole set of different levels and can have spill-overs in a whole
lot of others. Construction and consumption booms were maybe Euro-area’s last
chance to defer finding solutions to this rather serious problem. Let us be
assured, the fact that these past years an enviable social calm loomed over
the Euro Area, it doesn’t mean that we can take it for granted. Problems like
this one, undermine exactly this. By all these I don’t mean that solutions to
such problems are easy and it sure is way easier to tap your keyboard than
solve such deep rooted problems owed to secular shifts, the thing is that the
problem remains though…
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