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Eurozone risks losing a further 4.5 million jobs

A report by the ILO’s International Institute for Labour Studies says a concerted policy shift towards job creation is needed in order to reverse the heavy unemployment crisis affecting the single-currency area.

News | 11 July 2012
GENEVA (ILO News) – Unemployment in the Eurozone could reach almost 22 million over the next four years, up from 17.4 million, unless policies change course in a concerted manner, the ILO says in a report entitled “Eurozone job crisis: trends and policy responses” .

 The entire global economy is at risk of contagion."
J. Somavia
The study warns that without a shift in policy direction all countries in the Eurozone – both those currently under stress and their healthier counterparts – will suffer.

“It’s not only the Eurozone that’s in trouble, the entire global economy is at risk of contagion,” said ILO Director-General Juan Somavia.

“Unless targeted measures are taken to increase real economy investments, the economic crisis will deepen and the employment recovery will never take off. We also need a global consensus on a new path for job-intensive growth and globalization. This is a major leadership responsibility of the United Nations, the Bretton Woods system and the G-20,” he added.

The consequences of a lengthier labour market recession would be particularly dire in the short term for young jobseekers.

Unemployment has risen in more than half of the region’s 17 countries since 2010 and over three million youth aged 15-24 are unemployed. More than one third of working-age people in the Eurozone are either unemployed or excluded from the labour market, and long-term unemployment is on the rise.

Stronger Eurozone economies also at risk

Jobs losses have been especially acute in Southern Europe, but even Austria, Belgium, Germany, Luxembourg and Malta -- the only countries where employment has risen since 2008 -- are seeing signs that the labour market situation may no longer be improving.

The jobs destruction could have been even worse, as companies appear to have kept workers in the hope that economic conditions would improve. If their expectations don’t come true, worker retention may become unsustainable, leading to significant jobs losses.

In short, all evidence points to the risk of a prolonged labour market recession, threatening the sustainability of the single currency. At the same time, the jobs situation is feeding social unrest and eroding confidence in banks and the financial system, national governments and European institutions.

Window of opportunity

The report shows that, by embracing a Eurozone growth strategy with jobs at its core, a recovery is still possible within a single-currency setting.

The window of opportunity is closing. But the ILO Global Jobs Pact and the Call for Action on the youth employment crisis, recently launched by the International Labour Conference, offer a portfolio of policies, which Eurozone countries can continue to draw on.

According to the report, austerity has resulted in weaker economic growth and a worsening of banks’ balance sheets, leading to a further contraction of credit, and consequently lower investment and more job losses.

It highlights the problem that Eurozone economies where unemployment is growing have dwindling resources to help jobseekers. The opposite is true in stronger economies. Agreement on broadening the tax base through social dialogue could help finance pro-employment programmes where needed.

To move out of the austerity trap, the report recommends:
  • Repairing the financial system conditional on resuming credit to small firms. Making shareholders pay for the bailouts would not only be fair but also reduce the need for taxpayers money or further austerity measures.
  • Promoting investment and supporting jobseekers, especially for young workers. A “youth guarantee”, at a cost estimated at less than 0.5 per cent of the Eurozone’s government spending could be quickly implemented. To fund this, there is a case for refocusing European Structural Funds and mobilizing the European Investment Bank.
  • Addressing differences in competitiveness between Eurozone countries. This opens up a new opportunity for social dialogue to ensure that i) labour incomes grow in line with productivity in the stronger economies; ii) income moderation in deficit countries is complemented with policies to boost the industrial base; and iii) a downward spiral in wages and worker rights is prevented.
There is greater coordination following the Eurozone Summit Statement at the end of June and the European Commission’s proposed Action for Stability, Growth and Jobs and the Employment Package. But these statements need to be followed by concrete policy action.
Regain the trust and support of workers and enterprises to implement necessary reforms."
R. Torres
“It is not easy to agree on such a concerted strategy, given the different country positions. However, without a prompt policy turn to regain the trust and support of workers and enterprises, it will be difficult to implement the reforms necessary to put the Eurozone back on a path of stability and growth,” said Raymond Torres, head of the ILO’s International Institute for Labour Studies and lead author of the report.

Video report on the job Crisis in the Eurozone


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