EconoMonitor

The Wilder View

Unemployment in Europe: It’s Not Just Spain

The New York Times published an article about Spain’s “soaring” unemployment rate among those aged 15-24. Across Europe and in the US, the unemployment rate for young workers surged in 2009.

Labor reform is needed in Spain, which is the overall theme of the NY Times article; but the article confuses slightly the long-run phenomenon that is Spain’s growing structural unemployment versus the cyclical surge in unemployment across Europe:

But the sharp increase among young people is particularly problematic. It has jumped from 17.5 percent three years ago at the height of the boom to the current 42.9 percent.

A three year rise in unemployment is a structural issue in Spain, rather than surging unemployment rates in 2009, which is a cyclical trend.

15-24_chart.png

The chart illustrates the unemployment rate for those aged 15-24 across the European Union when available and for the US (for comparison). The data are sorted by largest % YTD (year to date) rise in the unemployment rate from Ireland (largest gain) to Belgium (smallest gain). Sorting the data this way focuses on the cyclical unemployment rate rather than the structural rate, i.e., the unemployment rate in Spain is starting from a very high base, 32.5% in January 2009.

The rise in Spain’s unemployment rate for young workers 15-24 is great, +32.0% since January; but that in Ireland (52.7%), the Czech Republic (47.1%), Denmark (37.9%), Bulgaria (32.8%), and Slovakia (32.2%) are larger in magnitude. Across Europe, younger workers are being forced into unemployment – or schooling, which is common for this cohort.

The data indicate that Spain’s unemployment rate is the highest. However, this is an incomplete picture since just 21 out of the 30 (27 EU member plus 3 candidate) countries listed unemployment rates for workers aged 15-24 (you can see the Eurostat labour – labor in American English – market survey data here) in the latest month, October 2009.

Including those countries not listing monthly 15-24 unemployment data, and focusing on the total unemployment rate, Spain’s surge is not the strongest nor is its level the highest.

total_chart.png

According to the OECD (in the 2009 Economic Outlook No. 86), Spain’s labor market problems have likely peaked, while those in other parts of Europe are only getting started (like that in Germany, which could rise significantly in 2010):

the largest part of the total expected increase in unemployment in Spain has already taken place, while in other European countries significant further increase in unemployment is expected going forward.

The Baltic States are taking a beating, Latvia’s unemployment rate was already 20.9% in October. And since the Baltic economies are expected to drop (see the European Commission’s autumn forecast) the most in 2009 and 2010, a lagged indicator like the unemployment rate is bound to rise further.


Originally published at News N Economics and reproduced here with the author’s permission.

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