Paris, May 27
Europe is set for a rebound to growth the latest forecasts show, but unemployment will keep on rising, a conundrum that highlights the difficult economic reforms that still need to be made.
Policymakers have generally taken it as a given that growth produces jobs, but the relationship is not so simple given the complex interplay of business, people and regulations.
In its latest Economic Outlook report, the Organisation for Economic Cooperation and Development forecast that after a 0.1 percent contraction this year the eurozone will rebound in 2013 with 0.9 percent growth.
Yet unemployment is set to rise to 10.8 percent this year and 11.3 percent in 2013.
The upward drift in eurozone unemployment "hides sharply divergent developments," the OECD said, "with large increases from already-high levels in the economies under market pressure, more moderate increases elsewhere and continuing declines in Germany."
Indeed bailed out countries Greece and Portugal as well as Spain and Italy are set to see unemployment rise further as their economies keep on contracting.
But unemployment will also rise for countries with growth, such as in France, which is forecast to expand by 0.6 percent this year and 1.2 percent in 2013 but with the jobless rate also forecast to climb to 9.8 percent and 10.0 percent.
Fellow eurozone members Austria and Luxembourg are also forecast to see steadily rising unemployment despite their economies continuing to expand.
Likewise for Britain, which is outside the euro, as is Sweden, where the jobless rate will hold steady despite the economy growing.
"The historical links between unemployment and growth fit with difficulty in this crisis," the head of the French state’s Employment Council, Marie-Claire Carrere-Gee, told AFP.
The Employment Council released a report on how employment policies fared during the global financial crisis in 2008, and found that fewer jobs were lost in countries such as France and Britain than would otherwise would have been expected.
For such countries "the link between growth and employment, already weaker, was weakened further" noted the report, especially compared to countries such as Spain and the United States which saw unemployment explode after property bubbles burst.
One reason that helped some European countries avoid a massive surge in unemployment were state programmes to help businesses temporarily reduce working hours, or let people share jobs.
"Companies preferred to hold on to their skills base to be positioned when activity recovered," said Carrere-Gee.
But this came with a cost, both to companies and the overall economy.
For Mathieu Plane, an economist at the French Economic Observatory, the report showed "a loss of competitiveness for businesses which absorbed the shock and didn’t immediately react by cutting employment."
The OECD sees less room for labour retention during the eurozone debt crisis.
"In some European economies as in 2008-09, it is possible that lower working hours might cushion employment, although the scope for doing so is more limited at present," it said in its latest report.
The OECD said working hours were now close to estimated trend levels, rather than above them as in 2007-08.
Instead, businesses appear to be cutting jobs this time in response to the slowdown "bringing the unemployment rate back towards a level that might normally be expected given output developments," said the OECD.
The London-based research firm Markit, which compiles the closely-watched Purchasing Managers Index (PMI) survey, found that French companies are slashing jobs in response to weakening demand.
"Companies adjusted to the deteriorating conditions by cutting employment at the sharpest rate for over two years," said Markit senior economist Jack Kennedy after releasing the May figures for France.
The policy prescription from the OECD and others is much the same that European countries have received for dealing with the debt crisis: structural reforms to increase flexibility and competitiveness.
"Labour market reforms remain essential to foster near-term employment growth and reduce the risk that higher unemployment becomes permanently entrenched," said the OECD.
Such reforms can be politically difficult to implement as they take on entrenched interests, but Spain, Italy, Portugal and Greece have all moved along this front although there is an increasing risk of an electoral backlash before results emerge.
"Elections in a number of euro area countries have signalled that reform fatigue is increasing and tolerance for fiscal adjustment may be reaching a limit," OECD chief economist Pier Carlo Padoan warned this past week.