EU Admits Austerity Risk For Jobs

A new report released by the European Commission late last week underlines the devastating consequences of the financial crisis on youth employment, and acknowledged the difficulty in implementing policies to alleviate this crisis as the European Union focuses on austerity.

“Young people remain the hardest hit by the crisis and its aftermath,” says the report, and the faltering recovery is expected to make things worse.

“In short, income shocks may prove permanent and income losses at the bottom of the distribution can be persistent.”

The consequences can be long-term scarring for youth, with future employability and earnings at risk. The EU report also concludes that the risks of long-term exclusion from the labor market and society are increasing for the jobless.

The EU in the past two years has added only a net 1.5 million jobs in the total population, compared to the 6 million jobs lost during the recession. Youth unemployment has risen to 20% in the EU and is above 25% in 10 Member States, with a high of 48% in Spain. And, another recession is coming, which will almost certainly undermine any economic recovery, amid a slowdown in world trade and the protracted euro crisis.

“As the economic context remains difficult, governments’ fiscal space will remain very tight with little prospect of increased levels of social spending,” says the report. Social protection measures during the height of the crisis did actually help stabilize household incomes, it says.

The limited ability to provide further support, though, comes after the crisis “massively” destroyed medium-paid jobs in manufacturing and construction and as employers are becoming more demanding about education and skills levels.

This is not only “compromising the chances” for lower-skilled people to regain employment. In addition, educated workers don’t meet the demands of the new high-skilled jobs, which seek different kinds of educational backgrounds. Germany is famous for this problem.

On top of that, in-work poverty is increasing in Europe with the rise of temporary job contracts, which put young people most at risk. In Germany, Slovenia, France and Sweden most temporary contracts are concentrated among the young. Temporary contracts on average carry a 14% wage penalty relative to permanent jobs. So even though a country like Germany has among the lowest youth unemployment rates in the EU at about 9%, this masks a growing risk. Moreover, mobility between temporary and permanent contracts is not high in Europe, says the report, so that low-wage work can become a persistent feature of a person’s working life.

The report also highlights that member states with high income inequality were usually harder hit by the crisis. The four most unequal countries in the EU-15 are Portugal, Greece, the U.K. and Spain, based on 2009 data.

The EU says that measures that would increase income inequality include cuts to benefits like education and healthcare, cuts in social transfers, and an increase in consumption or value added taxes—all measures being undertaken in parts of Europe

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