8/28/2019 Employment in southern Europe: better, but fragile - Work in progress

Work in progress

Employment in southern Europe: better, but fragile

More reform is needed to guard against a recession

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Print edition | Europe

Aug 22nd 2019 | AGUEDA AND MADRID

V ital almeida is on the hunt for workers. The boss of Ciclo Fapril, a rm that makes metal components for foreign
manufacturers, needs to hire 200 sta by the end of the year to meet new orders. But luring workers—even unskilled
ones—to Agueda, a rural town in central Portugal, is proving di cult. To attract more, he is running open days, setting up
internships and building relationships with local schools.

This is a far cry from the state of a airs just over a decade ago, when the global nancial crisis struck. Many of Mr Almeida’s
neighbours, also metal-bashers, were forced to close down. He weathered the drought by closing the factory on Friday
afternoons and freezing pay.
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As southern Europe was racked by the crisis, joblessness rose dramatically. Unemployment rates in Spain and Greece
exceeded 25%; youth rates neared 60% (see chart). Populations shrank as many left home in search of better fortunes
abroad.

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These trends have reversed since 2015, when economic recovery took hold. In the euro area nearly 8m jobs have been
created, one for every 20 adults of working age. The unemployment rate has returned to pre-crisis levels, even as the pool of
available workers has grown. Older people are working longer: nearly two-thirds of 55- to 64-year-olds in the euro zone are
in the labour market, compared with less than half in 2007. In southern Europe, net migration has turned positive.

Even so, the labour-market recovery in the south has further to go. Unemployment rates are above pre-crisis levels in
Greece, Italy and Spain; youth rates are still 30-40%. Part of the explanation is anaemic economic growth. In Greece and
Italy, output is still below pre-crisis peaks.

But in Spain, despite an impressive economic recovery, 1m more people are still out of work than in 2008. Comparisons with
the years immediately before the crisis are tricky, because Spain was enjoying a construction boom and unemployment may
have been unsustainably low. But Marcel Jansen of Fedea, a think-tank in Madrid, also points the nger at underperforming
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job centres and schools.

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8/28/2019 Employment in southern Europe: better, but fragile - Work in progress

Nearly 40% of Spain’s unemployed have been jobless for over a year, and need well-designed programmes to get them back
Subscribers
into work. But the country’s employment enjoy
services preferential
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High unemployment also re ects a long-standing feature of southern labour markets: a relatively large share of workers
cycle in and out of temporary jobs. Cushy contracts for permanent workers, with high severance pay and lengthy appeals
procedures, make it costly for bosses to sack them. Instead they hire lots of temporary sta , and respond to downturns by
cutting their wages or not renewing their contracts. Collective-bargaining agreements for permanent sta can be in exible
—in Portugal, for example, they cannot include wage cuts, making it hard to cope with downturns.

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Many countries have enacted reforms since unemployment soared during the crisis, in some cases as a condition of bail-out
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funds.These included cutting severance pay forenjoy preferential
permanent rates
sta in order ontemporary
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contracts less attractive to
bosses, and allowing rms in dire straits to depart
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Those reforms have had mixed results. In Spain and Portugal pay cuts and freezes, though unpopular, helped restore
competitiveness. But the share of temporary workers—at
Give around a €20
a gift for just fth of jobs—has barely budged. That is not because
these people are satis ed: fully 80% would like to nd a permanent job, compared with around a third in Britain and 14% in
Germany. Pedro Martins, a former employment minister in Portugal who is now at Queen Mary University of London,
wonders whether bosses are still too uncertain about the economy to take a punt on a permanent hire.

Another risk is that reforms may be rolled back. France is an exception: since 2018 it has taken steps to encourage
permanent hiring and vocational training. But farther south a backlash against wage austerity is encouraging governments
to adopt risky measures.

Minimum wages have been raised—sensible enough after years in the deep freeze. But some of the rises appear excessive.
Spain’s has risen by 22% this year, after a 12% increase in 2017-18, despite double-digit unemployment. The Bank of Spain
warns the uplift could cause 125,000 job losses, though others dispute that.

Other reforms seem half-baked. In 2018 Italy’s government raised severance pay for permanent workers and lowered time
limits on temporary contracts, despite a warning from the national social-security administration that it would lead
employers to shed temp workers. Thirty-year-old Giulia lost her job when the law came into force. “The situation was
absurd,” she says: although employers were happy with her work, they were forbidden to renew her temporary contract, and
decided to hire and retrain someone else instead. Frustrated by her experience in Italy, she has taken up a job o er in
Marseilles.

As the global economy slows, the spectre of job losses returns. Another full-blown crisis is probably not in the cards. But,
frets Mr Martins, a rollback of reforms could limit employers’ ability to spread the pain of job and wage cuts more evenly.

This article appeared in the Europe section of the print edition under the headline "Work in progress"

Print edition | Europe

Aug 22nd 2019 | AGUEDA AND MADRID

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