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Claiming that the EU is close to full employment goes against the meaning of the language – William Mitchell – Modern Monetary Theory

Last week (September 13, 2023), the EU President published her annual report in Brussels—— 2023 State of the Union Address. We all know that these events are spin-offs and it will be difficult for the leaders of the Group of 27 to stand up and negotiate this arrangement. But this was an election speech – the next big election will be in the year ahead. The President praised all the half-baked and underfunded programs they had launched under her “leadership” and while assessing the labor market situation, she made an extraordinary statement saying that due to the Commission’s policies such as: certainly) “Europe is close to full employment.” Yes, they distort the idea that the problem is not a lack of jobs but “millions of people looking for jobs” while acknowledging that “8 million young people are both There is no employment, education or training” – the so-called “NEET generation”. . Language should first convey meaning. Attempts to claim that Europe is close to full employment violate this basic aspiration. The reality is that Europe is still far from this goal.

Official unemployment rate – still high

The first chart shows the official unemployment rate for the 20 member states of the Economic and Monetary Union (EMU), or Eurozone.

The current interest rate is 6.4% and has remained around that level for several months.

Indeed, this is the lowest interest rate experienced since the inception of the common currency.

But is the official unemployment rate of 6.4% really close to full employment?

This means that as of July 2023 (the latest data available from Eurostat), 10,944 thousand workers are still available and willing to work without a job.

There are also considerable differences in unemployment rates across the 20 member states.

The chart below compares the unemployment rate in March 2020 (when the pandemic began) with July 2023.

During this period, the rates for the countries in question fell slightly.

Clearly, the unemployment rates in Greece and Spain have fallen significantly, but both countries still face massive unemployment due to very high bases – 10.8% in Greece and 11.6% in Spain.

Furthermore, unemployment rates increased in July (relative to June) in 9 of the 20 member states, while only 4 states experienced a decrease in unemployment during this period.

In some cases, unemployment worsened (Belgium, Estonia, Croatia, Austria and Finland).

Consider the official tax rates in Norway (3.5%), the United States (3.5%) and Japan (2.7%).

Even in the United Kingdom, a recently departed former EU member, the unemployment rate reached 4.3% in July 2023. Although it has increased in recent years, it is still far lower than the overall unemployment rate in the euro area or the EU27.

Why does the European Commission claim that 6.4% unemployment is the lowest the EU can achieve?

So even looking only at the official unemployment rate, it’s hard to justify the claim that there can’t be more jobs for more people than currently available.

skills shortage

The president asserted that the real problem is not a lack of jobs, but a lack of workers:

It’s not millions of people looking for jobs, it’s millions of jobs looking for people.

Latest European Commission (Eurobarometer) survey (published in September 2023, conducted in May 2023) – European Year of Skills – Skills shortages, recruitment and retention strategies for SMEs – provides some interesting results (as credible as possible).

Overall, 52% of EU27 SMEs surveyed said they found it “difficult” to “find workers with the right skills”.

However, 52% of small and medium-sized enterprises said it was “very difficult” or “moderately difficult” to retain skilled workers.

This raises the question of why these companies are having trouble retaining their existing workforce.

Maybe the reason they have trouble attracting new workers is that they don’t offer favorable terms, and their existing workforce knows this and moves around regularly.

Additionally, 55% of these companies admitted that “assessing employees’ training needs” is difficult (very, moderately or slightly) – which raises questions about the quality of their skills development processes and their ability to assess skills requirements anyway.

This affects the accuracy of their answers, whether skills shortages limit their activities or management incompetence.

Likewise, 58% said it was difficult to “find appropriate training opportunities for employees.”

Why is the ratio so high?

What’s more, 55% of respondents said it was difficult to “fund employee training” – which may mean they are pursuing expansion at the expense of proper forward planning.

What’s more, 70% of respondents said it’s difficult for employees to “make time for employees to attend training” – again a lack of forward planning.

When I analyze these surveys, I am always interested in assessing the strategies companies are implementing to address so-called “skill shortages.”

We often find that the existence of a “skills shortage” is actually just a sign that companies are unwilling to offer attractive wages.

A real skills shortage should lead to rapid wage increases as businesses compete for available skilled workers.

This is not evident in the European Commission’s overall figures, and the aforementioned SME survey shows that only 32% of companies that said skills shortages were holding them back said they were willing to “improve financial and/or non-financial employment attractiveness” benefits” to attract more skilled employees to their workplaces.

The point is, if they are truly “blocked” then they won’t be able to make potential sales.

This means that if they are unwilling to pay higher wages to expand activity levels, then the profitability of expansion must be questionable.

Or they are unwilling to give workers a higher share of potential additional income.

Both options tell me that these skills shortages are technically binding.

Interestingly, 70% of respondents said they received “not a lot” or “no effort at all” from “organizations/authorities at EU level” in terms of support to address skills issues.

Therefore, if these “skill shortages” do hinder EU development, we would expect greater financial support.

Therefore, the president’s words in this regard ring hollow.

65% of companies said they were “not at all familiar” with “EU skills policy initiatives (e.g. Skills Pact, European Apprenticeship Alliance or Centers of Excellence for Careers)”.

54% said they were “not at all familiar” with “EU skills funding schemes (e.g. European Social Fund+ or Erasmus+)”.

70% said they were “not at all familiar” with “EU initiatives to facilitate the hiring of skilled workers from abroad (such as the Blue Card)”.

As a result, there are communication problems between the vast Brussels bureaucracy and the economic units providing jobs in the EU.

Broader workforce idleness indicator

As I have explained many times, the official unemployment rate is a very narrow measure of labor slack, and when assessing whether a country is currently at or near full employment we must consider a much broader measure that takes into account:

1. Underemployment.

2. Hidden unemployment.

3. Edge attachment.

On 13 September 2023, Eurostat updated their – EU Labor Market – Quarterly Statistics – These include some broader measures of EU labor slack.

The chart is taken from the data set – Labor market slack by sex and age – quarterly data – and shows Eurostat’s broad measure of labor market slack.

Labor market slack measures “unmet job demand” and is home to 23.9 million people across the EU.

This is:

…The sum of unemployed people, underemployed part-time workers, people looking for work but unable to find one immediately, and people available for work but not yet looking for work, expressed as a percentage of the expanded labor force.

In the sixth quarter of 2023, the labor market slack rate was estimated at 11.9%, having been around this level since June last year.

Components of this measure include:

1. The official unemployment rate for the sixth quarter of 2023 was 11.9 million.

2. Underemployed part-time workers (those who are employed but want but cannot find more hours) – 5,595 thousand, or 2.4%.

3. People who can work but are not looking for work – 6.215 million people, or 2.5%.

4. People who are actively looking for work but unable to find a job – 2.03 million people, accounting for 0.8%.

Eurostat does not publish readily available data on the overtime that underemployed part-time workers want to work.

But the European Working Conditions Survey publication— Working conditions in the time of COVID-19: Implications for the future (Published November 29, 2022) – Really provides some useful information.

The last survey was in 2021 (every five years) and Figure 84 (reproduced below) gives us an idea of ​​the preferred additional working hours.

EWCS states:

A preference for longer working hours (which may reflect underemployment to some extent) is seen among younger workers (24% of workers aged 16-24), temporary employees with contracts of less than one year (24%), primary school workers More common among workers. Occupations (26%), service and sales staff (19%), business and hospitality (16%), and transportation (15%)

Overall, the system is “near full employment” when 11.9% of the available labor force is not working in some way.

OECD data – temporary employment – shows that 14.1% of wage and salary employment is temporary (i.e. has a “predetermined end date”).

in conclusion

Although politicians continually claim that their countries or areas of responsibility are “close to full employment,” data rarely confirm this assessment.

Think of it this way – mainstream economists like to tell us that when inflation is stable, full employment is achieved.

In June 2022, the inflation rate in the 27 EU countries was 9.6%.

In June 2023, the proportion dropped steadily to 6.4%.

What does this mean – if we apply mainstream logic, the unemployment rate between these dates is more than Their measure of full employment.

Inflation is expected to continue falling in the coming months.

The prevailing notion of a “full employment” unemployment rate must therefore be lower than the current official rate.

That’s enough for today!

(c) Copyright 2023 William Mitchell. all rights reserved.

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