Global Daily – Real unemployment in the eurozone is higher than it seems

by: Aline Schuiling

Euro Macro: Eurozone labour market still in doldrums  –  A number of indicators for labour market conditions in the eurozone have been published recently. To begin with, Eurostat reported that the eurozone unemployment rate came in at 8.3% in February. As the January number was revised higher to 8.3% from 8.1% the series stabilised in February. Compared to its pre-pandemic low of March 2020, the unemployment rate has risen by 1.2 percentage points, which is equal to a rise in the number of unemployment persons by around 2 million. Compared to the drop in economic activity since the start of the pandemic, the rise in unemployment has been extremely limited, which of course is partly thanks to the wide use of government subsidised short-time work schemes (STW).

Eurozone unemployment rate, % labour force

Source: Thomson Reuters Datastream, ABN Amro Group Economics

People in short-time work schemes, millions

Source: Ifo Institute, Dares, ABN Amro Group Economics

France and Germany have published data for of the use of STW in February. People in STW are considered to be employed. 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. The government reimburses the companies what they have paid to these employees, which often is around 70-80% of their normal hourly pay. In France 2.1 million people were in STW in February, which is equal to around 11% of all employees. The use of STW has decreased slightly compared to January, when 2.3 million people (12% of employees) was in STW. Meanwhile, in Germany the number of people in STW rose to 2.8 million in February, up from 2.7 in January. As a share in total employment STW rose to 8.5%, up from 8.1% in January. The STW reports for Germany and France indicate 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 more than 11% in February instead of the 8% that was reported by Eurostat, while Germany’s would have been close to 8% instead of 4.5%.

Meanwhile, the unemployment rate has also been depressed by a rise in the number of people who are registered as being inactive (not in a job but not meeting the conditions to be counted as unemployed). Overall therefore, we continue to judge that the labour market situation, and the real level of slack in the labour market is worse than suggested by the unemployment rate. (Aline Schuiling)