Unemployment in the eurozone fell to a record low of 7 per cent at the end of last year, underlining how the region’s labour market has bounced back faster than expected from the impact of the pandemic.
The 7 per cent unemployment rate in December fell from a downwardly revised 7.1 per cent in November — which itself matched the previous low of March 2020, just as the pandemic hit Europe. Growing numbers of businesses in countries such as Germany and France are reporting a shortage of workers as demand for goods and services increases.
The improvement in the labour market was particularly strong among young people, as the jobless rate for those aged under 25 fell to a new all-time low of 14.9 per cent, down from 15.4 per cent the previous month.
Youth unemployment has long been the scourge of the European labour market and peaked at 25 per cent during the region’s debt crisis in 2013.
The biggest fall in youth unemployment over the past year was in Spain, where it dropped from 41 per cent in December 2020 to 30.6 per cent, although that only took it back to pre-pandemic levels. Among the bloc’s main economies, youth unemployment has fallen the furthest below pre-crisis levels in France, declining from 21 per cent in December 2019 to 17.6 per cent last month.
“Some of the decline in unemployment appears to be down to people temporarily leaving the labour force as Covid restrictions were tightened to counter the Omicron variant,” said Jessica Hinds, senior Europe economist at Capital Economics, who estimated the bloc’s labour force shrank 0.2 per cent in December.
“However, that is much less than in previous periods of tighter restrictions and should not detract too much from what has been a very full recovery that contrasts with developments in the US,” she added.
The drop in Europe’s jobless rate came despite the end of most short-time work schemes introduced to mitigate the economic impact of coronavirus: the European Central Bank estimated only 1.8 per cent of workers were furloughed in October, versus 20 per cent in April 2020.
Eurozone businesses are confronting unprecedented and widespread shortages of workers, according to the latest quarterly survey by the European Commission.
About one-quarter of manufacturing and services businesses reported lack of workers as a factor limiting production in January, the highest proportion since data was first available in 1982.
Eurozone wage growth remains subdued: two-year annualised growth in pay per employee was 1.8 per cent in the third quarter.
However, the EU survey indicated that “the labour market is already tight and the remaining slack will diminish further by end-2022”, said Paul Hollingsworth, chief European economist at BNP Paribas, raising the chances of more substantial pay rises.
“We expect wage growth to accelerate in the second half of 2022 and in 2023 due to the current spike in inflation, the increasingly tight labour market and more labour-oriented policies,” he added.
Worker shortages are most acute in Germany, where they were reported by more than a third of businesses in the services and manufacturing sectors. In France, a record high 22 per cent of businesses lacked the staff they needed. In Italy’s and Spain’s services sectors, the proportion has risen to double-digits for the first time in history, the survey showed.
Labour shortages were more common for businesses producing machinery, equipment and furniture, at about 30 per cent. But a quarter of companies in most industries, including cars, food production and textiles, struggled to find enough workers.