Greece lumbers at bottom of Europe’s jobs recovery

26/8/2016

The eurozone’s jobs recovery has been motoring along nicely but the latest breakdown of the bloc’s labour market shows the gains are unevenly spread.

Greece, which still creaks under the highest jobless rate in the single currency area at 23.3 per cent, is proving immune to the wider pick-up in eurozone employment, writes Mehreen Khan.

According to the EU’s latest quarterly jobs numbers, more than 94 per cent of unemployed Greeks were still unable to find work in the first three months of the year – by far the worst in the continent, eclipsing the likes of Bulgaria, Slovakia and Romania.

Just 4.3 per cent of jobless Greeks managed to enter the workforce, compared to an average 15 per cent across the EU as a whole in the three months to the end of June (see chart below). The remainder of the workforce is deemed “inactive”.

Figures released next week are set to show overall unemployment in the single currency area will have dropped to a fresh five-year low of 10 per cent in August – its lowest level since June 2011.

But the Greek problem should worry policymakers. It typifies a phenomenon that keeps economists awake at night: the failure of those who have been out of the workforce for a prolonged period to re-enter the jobs market.

Known as “hysterisis“, it is the the process by which the unemployed gradually lose their skills and drop out of the workforce for good. This contributes to permanently lower potential growth rates, denting future living standards and leading to chronically high levels of unemployment.

The labour force figures also expose stark differences between prospects in the “core” northern eurozone economies against those in the struggling periphery.

According to Eurostat’s figures, Italy had the highest rate of unemployed people falling into “inactivity” at 37.1 per cent in the first quarter.

The inactive proportion of the labour force can include students, pensioners and those who have simply stopped looking for work. Eurostat’s figures do not breakdown the inactive population by category, but with headline unemployment at over 11.5 per cent, and an economy which has barely grown over the last deacde, Italy’s chronic weaknesses are the next to watch.

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