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Economy in Brief

EMU Unemployment Rates Are Falling; But Is the Sky Falling Too?
by Robert Brusca  November 3, 2021

Unemployment rates in the EMU continue to fall broadly in September but to fall mildly. The September decline was broad enough and occurred in enough large countries that the EMU rate fell by 0.1 percent points. The pace of the unemployment rate reductions has picked up ever so slightly over three months and over six months compared to over 12 months. On balance, there are subtle but positive developments in train.

Unemployment rates are falling
Among the 12 EMU members in the table, the longest standing members overall, the unemployment rate fell month-to-month in nine of them in September; it fell in seven members in August and in eight members in July.

Over three months (compared to six months), over six months (compared to 12 months) and over 12 months (compared to 24 months ago), the unemployment rates for these countries rise in only one of twelve members on each horizon.

Low levels of unemployment attained…at a cost
And unemployment rates have been returned to low levels for most members. Among the 12 members, only three have queue standing on their unemployment rates above the 50-mark, a signal that unemployment rates in those three countries (Austria, Luxembourg, and Greece) are still above their historic median rates. The EMU-wide unemployment rate ranks in its lower 5.6 percentile – that is quite low. The EMU-wide ranking pools unemployment and labor force statistics across member nations creating an aggregate unemployment rate from that. Of course, the largest population countries get the higher weight in that framework. As an example, the simple average of these 12 separate countries has an unemployment rate rank standing of 30.8% and a median of 30.2%. These standings are great distance apart from the ‘weighted’ EMU average rate standing that resides in its lower five percentile. Still, nearly all these standings represent low levels for unemployment rates. Policy is helping to reduce unemployment, but unfortunately inflation is very uncomfortably flaring higher and interest rates are below levels that can be sustained.

The EMU-wide number reflects more on an economic take on what unemployment is in the EMU economic region. But the average unweighted rates and standings by country gives you more of a sense of the politics of policy in the EMU. Even countries with absolute high levels of unemployment generally have levels that are for them historically low or moderate.

That said, the EMU-wide unemployment rate is set at 7.4%. The unweighted unemployment rate for these 12 key member countries has a median that is lower at 6.4% but an unweighted average that is also at 7.4%. The overall change in the rate of unemployment from 12-months to six-months to three-months is still roughly the same for this group of 12 countries as it is for the weighted overall EMU rate changes.

Unemployment since Covid came to town
Looking at net changes in unemployment rates from January 2020, the level that prevailed just before Covid struck, the EMU rate is lower by 0.1% point. Among these 12 members, unemployment rates are lower on balance for this period for five countries (Greece, Italy, Portugal, France, and Luxembourg). Unemployment rates are higher on balance in six of the seven remaining countries, with the German rate unchanged on that comparison. Ireland and Belgium each have an unemployment rate more than one percentage point higher than in January 2020. Finland, Austria, and Spain have increases in their rates that are less than one percentage point higher but more than 0.5 percentage points higher.

Unemployment rates are falling…but what about the sky?
On balance, the reaction and recovery of unemployment rates in the EMU and the low levels of unemployment that have been attained appear to be quite good and broad-based. Looking at aggregate EMU-wide status may create some different analytical signals from looking at national data where differences are not squeezed out by calculating a single average. Still, the EMU overview, from any perspective, is that substantial progress has been made. In view of the improvements in the labor markets, it is a surprise that Europe continues to offer so much stimulus and carries on with interest rates that are still so low. Just today ECB head Christine Lagarde said that she thought it’s unlikely that conditions would be met even in 2022 that world allow for rate hikes. If so, the EMU is going to be left with persisting broad low levels of unemployment, with high inflation and record low interest rates for yet another year. While the ECB, like the Fed in the U.S., sees inflation as being transitory, one view of policy is that both the Fed and the ECB are doing everything they can to make inflation all too permanent. It possible that such a series of policy events could continue to be economically viable, but it is more likely that the ECB is beginning to bake problems into this cake. The sky isn’t falling now, but will it?

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