EU Unemployment Rate Down on Growth and Jobs Over Welfare

The unemployment rate in the European Union (EU) has drastically declined since 2006. In particular, the drop in the unemployment rate came as the credit crunch stemming from the U.S. mortgage crisis slowed overall economic growth since the fourth quarter of last year. For this reason, some experts say that ‘labor reform’ over the past decade has paid off.

What they mean is that European governments’ labor reform and their focus on job creation rather than the social safety net has worked to turn the economic tide. Moreover, extension of the service industry also helped European nations create more jobs.

Eurostat, the EU`s statistics bureau, announced on Friday that the unemployment rate of the 15-nation Euro Zone remained at a record low of 7.1 percent in the first quarter. The rate went down by 0.3 percent from last year’s 7.4 percent despite the aggravating international economy.

Meanwhile, the number of working population increased 2.64 million compared to 2006 to 137.77 million. The number of those newly entering the job markets have been gradually on the rise to 2.36 million in 2005 to 2.55 million in 2006 and 2.64 million in 2007.

Among EU member states, Germany and Spain recorded the highest rate of new employment, with 780,000 and 610,000, respectively in 2007. These figures accounted for 52.7 percent of the Euro Zone during the same period.

European nations have put job creation high on their political agenda since the latter half of the 1970s, but it has been very difficult and elusive task.

In line with this, the Bank of Korea recently released a report, entitled, “The Cause of the Decline in Unemployment Rates in Euro Zone and Perspectives,” in an effort to learn from their successful cases.

Cho Il-gyu, assistant manager of the European branch of the Korea Trade Investment Promotion Agency (KOTRA), said, “Local critics praise it as the result of comprehensive labor reform based on the renewed Lisbon Strategy, which was released in 2005 as a way to promote employment rates through reorganization of the welfare model and labor market flexibility.

At that time, the European governments shifted their social policies by slashing unemployment allowances and social security benefits, which prompted people on the receiving end of unemployment doles to search for jobs. This in turn resulted in the reduction in employment costs and helped enterprises hire more new employees.

The ratio of labor costs to income tax and social security benefit rates reduced from 44.7 percent in 2000 to 43.2 percent in 2006. The rate of those living on unemployment benefits went down from 35.0 percent in 2001 to 32.9 percent in 2005.

The labor circles have also witnessed major shifts in their labor-management relations, as an increasing number of unions favor job security over wage hikes. A case in point is that in 2006, Volkswagen workers in Germany agreed with management to reduce wages by 9 percent in exchange for a seven-year employment guarantee.

In a similar vein, three major management groups and five trade unions in France reached a provisional agreement to strengthen labor flexibility this month in order to allow firms to freely hire and fire their workers in return for the job training and benefits.

“German auto workers who have been well-known for its militant unions have shown a much different approach from labor unions in Korea. They have been increasingly preferring extending working times in exchange for job security and no outsourcing of jobs,” said researcher Kim Jeong-han at the Korea Labor Institute

Deregulation in the service sector also has a crucial impact on creating more jobs. The ratio of employment in the service sector in the Euro Zone increased from 65.9 percent in 2000 to 67.7 percent in 2005. As for Spain, its tourism industry has seen a consistent rise in the employment, which has translated into 500,000 new jobs each year since 2000. According to KOTRA, Spain’s tourism industry accounts for 13 percent of its GDP.

Kim Jeong-un, head of the human resource department at the Ministry of Strategic Planning and Finance, said, “In an effort to create more jobs, the government has focused on sharpening the competitive edge of the service industry and easing regulations to provide a business-friendly environment.”

In order words, the government intends to create “win-win effects” in which removing numerous bureaucratic red-tape would bring about more investment into enterprises and eventually lead to creating more jobs.

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