Unemployment in the eurozone fell to a record low of 7 percent late last year, underscoring that the region’s job market has recovered faster than expected from the impact of the pandemic.
The number of unemployed in the bloc fell by 185,000 in the last month of 2021, raising the total number of unemployed to 11.5 million, Eurostat said on Tuesday.
The jobless rate of 7 percent in December fell from a downwardly revised 7.1 percent in November – which was itself in line with the previous low in March 2020, just as the pandemic was hitting Europe. More and more companies in countries like Germany and France are reporting labor shortages as demand for goods and services increases.
The improvement in the labor market among young people was particularly strong, as the unemployment rate for under-25s fell to a new all-time low of 14.9 percent after 15.4 percent in the previous month.
Youth unemployment has long been the scourge of Europe’s labor market, peaking at 25 percent during the region’s debt crisis in 2013.
The biggest drop in youth unemployment over the past year was in Spain, where it fell to 30.6 percent from 41 percent in December 2020, although that was only a return to pre-pandemic levels. Among the bloc’s major economies, youth unemployment in France has fallen the furthest below pre-crisis levels, falling from 21 percent in December 2019 to 17.6 percent last month.
“Part of the drop in unemployment appears to be due to people temporarily leaving the labor market as Covid restrictions tightened to counter the Omicron variant,” said Jessica Hinds, senior Europe economist at Capital Economics, who made the estimate that the bloc’s workforce shrank 0.2 cents in December.
“However, that is much less than previous periods of tighter restrictions and should not distract too much from a very full recovery, which is in contrast to developments in the US,” she added.
The drop in Europe’s unemployment rate came despite the end of most short-time work schemes introduced to mitigate the economic impact of the coronavirus: the European Central Bank estimated that just 1.8 percent of workers were on furlough in October, down from 20 percent in April 2020 .
Eurozone companies are facing unprecedented and widespread labor shortages, according to the European Commission’s latest quarterly survey.
About a quarter of manufacturing and service companies reported labor shortages as a factor limiting production in January, the highest proportion since data first became available in 1982.
Wage growth in the euro zone remains subdued: the two-year annualized growth in wages per employee was 1.8 percent in the third quarter.
But the EU survey showed that “the labor market is already tight and the remaining gap will continue to narrow through the end of 2022,” said Paul Hollingsworth, chief economist for Europe at BNP Paribas, raising the odds of more significant wage increases.
“We expect wage growth to accelerate in the second half of 2022 and in 2023 on the current surge in inflation, increasingly tight labor market and more labor-oriented policies,” he added.
The labor shortage is most acute in Germany, where it has been reported by more than a third of firms in the service and manufacturing sectors. In France, a record high of 22 percent of companies lacked the necessary staff. In the service sectors of Italy and Spain, the share has risen by double digits for the first time in history, the survey found.
Labor shortages were more common among companies that produce machinery, equipment and furniture, at around 30 percent. But a quarter of companies in most industries, including autos, food production and textiles, have struggled to find enough workers.
