Europe’s employment challenges

When the European Union held its first summit on growth and jobs in 1997, EU-wide unemployment stood at 11%. Last autumn, when it held another, not much seemed to have changed. Unemployment in the eurozone was 11.5% – up from a low of 6.8% in the first quarter of 2008.

If the EU is to fulfill its promise of peace and prosperity, it will need to find ways to create opportunities for more of its citizens. Youth unemployment is a particularly serious concern, even in countries with otherwise positive employment statistics; in countries with worse labor-market conditions, it represents a potential source of social and political instability.

Participation in the workforce is linked not only to income levels, but also to self-esteem, social inclusion, and social status. Being left out of the labor market increases the risk of poverty and poor health, and the longer unemployment lasts, the more damaging the effects. Young people who are unemployed have fewer opportunities later in life – representing a waste of education and skills that has a detrimental effect on national economies.

To be sure, some EU countries have managed to weather the crisis reasonably well. According to a new Social Justice ranking by the Bertelsmann Stiftung’s Sustainable Governance Indicators (SGI) project, Austria, Denmark, and Germany top the list in terms of labor-market access, followed by Sweden and Finland. But even in these countries, there is room for improvement. Denmark, for example, once served as a model for labor-market reform. Since the start of the euro crisis, however, unemployment has risen – from 3.5% in 2008 to 6.4% in November 2014.

Germany has radically reduced its unemployment rate in the last decade, even during the economic crisis. After years of high and long-term structural unemployment, the country implemented a series of labor-market and other reforms beginning in 2003, turning its economy into one of the top performers in the EU.

The German system of vocational training has matched the skills of the country’s workforce to the needs of its firms, contributing to low youth unemployment. But one troubling factor remains: the emergence of a dual labor market, in which low-wage and temporary workers find it hard to transfer out of inadequate working conditions into the mainstream labor market.

Dual labor markets are a problem throughout the EU. Austria has dealt with the issue best, according to the SGI study: only 8.1% of temporary employees surveyed had taken temporary work because they could not find permanent positions. Germany ranks a distant second, with 21% of those surveyed saying they would prefer a permanent position. In crisis-stricken southern Europe, the problem is even worse. In Spain and Cyprus, more than 90% of people in temporary positions cannot find permanent employment.

Another problem in top-ranked Germany and Austria is the lack of educational opportunities for certain groups, which contributes to a lack of opportunity and mobility in the labor market. In Austria, children are divided from fourth grade into separate education streams. As a result, their later educational development is set in stone from an early age.

The social status of parents often determines their children’s ability to access higher education. Children of higher-income parents and of parents who attended tertiary institutions are far more likely to graduate from university. In Germany, educational opportunities for children from immigrant and low-income families are fewer than in many other economically advanced countries.

Labor-market conditions for immigrants are also a troublesome issue in Scandinavian countries, which otherwise perform well in enabling access to employment. In Denmark, non-Western immigrants experience higher unemployment rates and lower educational achievement than others. Similarly, despite Sweden’s excellent record on non-discrimination in general, immigrants find it difficult to integrate into Swedish society and face disadvantages in the labor market relative to native Swedes.

Moreover, though Sweden has one of the EU’s highest employment rates, it has failed to tackle its longstanding problem of youth unemployment, which currently stands at 23%. In Spain and Greece, youth unemployment is above 50%, and the situation is not much better in crisis-hit Cyprus, Portugal, Italy, and Croatia. In the EU as a whole, youth unemployment stood at a dispiriting 21.9% in November. According to one study, this costs the EU €150 billion ($183 billion) per year in lost wages and spending, in addition to the hardship suffered by the many young people who are unable to find work.

In February 2013, EU leaders launched a Youth Employment Initiative, with a budget of €6 billion, to help alleviate the problem. But German Chancellor Angela Merkel admitted in June 2014 that the initiative has so far been a failure. The EU’s most recent jobs summit did not provide much in the way of new ideas.

The EU has said that young people should not be out of employment or education for more than four months; but no progress has been made toward making this a reality. Unless new thinking is adopted soon, Europe’s many unemployed young people risk becoming a lost generation.

This article is published in collaboration with Project Syndicate. Publication does not imply endorsement of views by the World Economic Forum.

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Author: Justine Doody writes for the Bertelsmann Stiftung’s SGI News and BTI Blog. Daniel Schraad-Tischler is Senior Project Manager at the Bertelsmann Stiftung.

Image: The Euro currency sign is seen next to the European Central Bank headquarters in Frankfurt November 6, 2012. REUTERS/Lisi Niesne.