Think back a little, to a time not so long ago, when all eyes were riveted to the unemployment figures. It was the political barometer par excellence, scrutinised by all elected officials seeking the votes of their fellow citizens. In France, previous president François Hollande’s five-year term was punctuated by the constant beat of this quasi-existential question: would he manage to fulfil his promise to reverse the unemployment curve? Suspense had reached a peak, but once the answer was “yes”, the issue disappeared from the radar. Unemployment became a non-issue, and despite his success on this front, Hollande didn’t even attempt to run for his own succession, leaving the way clear for Emmanuel Macron.
If no one is worried about unemployment anymore, it’s because the news in Europe is in fact pretty good. “The recovery from the crisis has been largely ‘V-shaped’, and the main labour market performance indicators in July 2022 were at their most positive levels since the beginning of the century,” reports Eurofound . “For perhaps the first time in a generation, labour shortages rather than unemployment – that is, labour supply rather than demand – is the more pressing policy concern.” Unemployment has fallen to 6.7 percent of the labour force in the eurozone, its lowest level in thirty years. The 2020 peak, when economies were under lockdown, is now history. “The COVID crisis has been an extremely fast recession. Rapid declines during lockdowns were followed by steep recoveries,” explains German researcher Enzo Weber of the IAB Institute . Even the effects of the 2008 collapse have evaporated – that is, on average, at the eurozone level. This is not yet the case for the southern European countries, which suffered the full force of the economic shock and the subsequent public debt crisis.
There are still significant differences between countries, particularly between Spain and Greece on the one hand, which still have an unemployment rate over 12 percent, and Poland or the Czech Republic on the other hand, with less than three percent unemployment.
In most countries, the drop is significant. This is especially true among the worst performers in Europe: in Greece (-5.2 points) and Spain (-1.6 points) the unemployment rate has fallen most dramatically between the end of 2019 and the end of 2022. In Italy, the outlook is also encouraging: “Labour demand has returned to pre-pandemic levels, with around 500,000 job vacancies in January 2023, 14 percent higher than in 2019”, confirms Cristina Tajani, President and CEO of Anpal Servizi SPA, the Italian National Agency for Active Labour Market Policies.
More broadly, unemployment is lower today than before the pandemic in 19 of the 27 EU countries, and in 8 other EU countries, the labour market has remained almost stable. Only in Estonia, Latvia, Finland and Croatia has the situation deteriorated significantly.
As for full employment, this is already a reality in 10 Member States, where the unemployment rate is below 5 percent, the threshold generally accepted by economists for awarding this holy grail. The Member States with full employment include Austria, Denmark, Ireland, Germany, the Netherlands, Slovenia and Poland. However, reducing full employment to the unemployment rate alone is too simplistic, as French economist Eric Heyer explains: “for this drop in unemployment to be truly virtuous, it must be accompanied by an increase in the employment rate. If this is not the case, it may mean that a certain number of people, discouraged, have left the labour market, therefore artificially lowering the unemployment rate.” This condition actually seems to be fulfilled in Europe: the fall in unemployment is indeed accompanied by an increased employment rate.
The number of jobs in the European Union is in fact reaching record levels: at the end of 2022, this figure was 3.7 million higher than at the end of 2019, just before the Covid crisis. The employment rate, i.e. the proportion of people employed, is also breaking records, despite a slight dip in the third quarter of 2022: 69.5 percent in September 2022 in the euro area, 1.8 points higher than three years ago, before the Covid crisis.
“You could say we’re approaching full employment,” says French economist Florence Pisani, director of economic research at Candriam. “If we look at the employment rate among the 25-54 age group, i.e. the core of the working age population, it is very high in Germany (86 percent), but this is also true in the rest of the eurozone where it is at its highest (81.2 percent), higher than in 2007, before the financial crisis. The employment rate for 54-65 year olds is much lower, but has been rising steadily, reaching 62.9 percent in the eurozone and 73.8 percent in Germany. The labour market is tight.”
In short, all indicators are in the green, including long-term unemployment and underemployment, both of which are on the decline. What could explain such an alignment of the planets? The first important element is demography. In 2021, the population aged between 15 and 64 years decreased by 0.6 percent in the eurozone and by 0.7 percent in the European Union. This phenomenon is particularly marked in Italy and Slovenia (-1.9 percent), but also in Poland (-1.2 percent), Germany (-0.5 percent) and France (-0.3 percent).
“In the 1980s, the working-age population grew quite strongly, by 0.7 percentage points each year,” explains Eric Heyer. “To bring down the unemployment rate, we had to create more jobs to compensate. With a falling or stagnating population, it is much simpler: fewer jobs have to be created to reduce unemployment.”
In addition to this phenomenon, there is a downward trend in productivity gains. In other words, the amount of work required to produce a good or service is falling less quickly than before. This makes it easier to create jobs: if an employer wants to increase production, she/he cannot rely solely on the increased efficiency of her/his employees, but must increase the workforce by recruiting. Where a proportion of growth was previously absorbed by increased productivity gains, this dynamic has now halted and we now need less growth to require more jobs. “To sum up,” adds Heyer, “we need fewer jobs to reduce unemployment and we need less growth to require more jobs. This means that, overall, we need much less growth to reduce unemployment. And this is true for all European countries.”
Indeed, the strong performance of the labour market contrasts sharply with that of economic activity, which remains sluggish in the eurozone. GDP grew by only