Job destruction in Europe moves upstream

Share

Elisa Forte is triply cursed.

She's of an age – 52 – when it is hard to reinvent yourself after losing your job. Her career was in book publishing, an industry in rapid decline well before the financial and debt crises hit. And Italy is in deep recession.

In other words, her employment prospects are grim, and she knows it.

"Tutto bloccato," she says, referring to the Italian job market – everything blocked. "This is the worst I have seen it in Italy. … Next month, we will be forced to leave our flat in Rome and find a smaller place or move outside Rome."

Ms. Forte lost her publishing job in January. Since then, she has been attending career seminars at a government jobs office in central Rome's Testaccio neighbourhood. Luckily, her husband, a government research scientist, is still employed, though she worries that the cutbacks will eventually catch up to him, too.

Ms. Forte is part of a disturbing new jobs trend in the euro zone, where the March unemployment rate, released Tuesday in advance of Thursday's decision by the European Central Bank on whether to cut interest rates, reached a record 12.1 per cent, up from February's 12 per cent: The job destruction is moving upmarket, trampling well-educated, well-paid workers with supposedly "permanent" jobs.

It is happening because many countries are overhauling, or at least tweaking, labour laws, making it easier for companies to fire permanent employees. At the same time, there are few initiatives in place to encourage employers to hire. The result is a steady increase in unemployment throughout the euro zone, especially in the recession-stricken countries on the Mediterranean frontier – Greece, Italy, Spain, Portugal and even France.

The job losses among the educated and skilled class are especially acute in Spain, a country with one of the highest jobless rates in the Western World – 26.7 per cent, according to Eurostat, virtually the same as in Greece, whose recession is deeper.

"Spanish workers, both men and women, between the ages of 25 and 45, and employed in industry and services most closely linked to the public sector and professional activities, are those most acutely suffering reductions in head counts," Afi, the Madrid financial and economics consultancy, said in a research note this week. "This profile helps [explain] why, unlike in the 2008-10 period, dismissals are also affecting workers with higher education and permanent contracts."

Spain's job destruction rate has been unequalled since the Great Depression. It began in 2007 and 2008, when Europe's biggest housing bubble burst, throwing millions of unskilled and semi-skilled workers, a huge number of them employed in construction, out of work. (At its peak, the construction and housing markets accounted for an unsustainable 19 per cent of the Spanish economy, by far the highest on the continent.)

Those jobs disappeared at an alarming rate because of Spain's bifurcated jobs market. The unskilled and semi-skilled workers were almost entirely on temporary contracts, making them easy to fire at almost no cost to the employer.

"The numbers were really shocking," said Gayle Allard, professor of managerial economics at Madrid's IE Business School. "There was an incredibly massive destruction of temporary jobs. Now permanent jobs are getting destroyed."

A reduction last year in the payout period to 20 days' pay from 45 days made it much cheaper for Spanish companies to ditch permanent employees. Ms. Allard expects Spain's jobless rate to rise to 28 per cent and not come down until the economy returns to growth. But with a forecast for a tepid recovery at best, – Afi expects 0.5 per cent growth in 2014 – she thinks the jobless number could stay above 20 per cent for several years, creating, in effect, a permanent underclass of long-term unemployed.

Italy is emerging as the next tragic job-destruction victim as its recession deepens, the manufacturing sector in the north collapses – output is down 25 per cent from its prerecession peak – and the tapped-out government is unable to find sufficient funds for retraining and education.

Italy's jobless rate was 11.5 per cent in March, the same as February's revised figure. The youth jobless rate rose to 36.3 per cent. Both figures are expected to rise as Italy remains in recession – Moody's forecast a 1.8-per-cent contraction this year – and consumer and investor confidence sinks.

This week, Italy's new Prime Minister, Enrico Letta, said job creation would be his coalition government's "top priority." He outlined a series of tax cuts to encourage employers to take on workers, though details were scant.

Italy's dire jobs market was tragically highlighted on Sunday, the day Mr. Letta's cabinet was sworn in, when a lone gunman fired on two Carabinieri military police officers in Rome. They were guarding the prime minister's office; one of them was seriously injured, with a wound to the neck.

An unemployed and evidently frustrated southern Italian was arrested.

"He is a man full of problems, who lost his job, who lost everything," Rome prosecutor Pierfilippo Laviani, told the media. "He was desperate. In general, he wanted to shoot at politicians, but given that he couldn't reach any, he shot at the Carabinieri."

In Rome, the prospects for the unemployed look dire despite the promise of Mr. Letta to make job creation his priority.

At the same government employment office in Testaccio that was holding the jobs seminars, Nadia Pignataro, 43, said she lost her job a year ago when a few big clients suddenly stopped paying the electrical business that employed her. "I was fired along with five others," said the mother of three. "We don't take holidays, we sold the car. There are a lot of us in our 40s and 50s without jobs for a long time. What will we do?"