Worker Flows in the European Union During the Great Recession

Abstract

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The Unbearable Divergence of Unemployment in Europe

“…A main driver of European cross-country differences in unemployment is youth unemployment, which stands above (often well above) 40% in southern Europe while remaining at single-digit levels in Austria and Germany. As shown by Casado, Fernández-Vidaurreta and Jimeno (2015), during this recession job losses were highly concentrated among younger workers. Thus the explosion of youth unemployment was, unlike in previous recessions, not only related to a hiring freeze, but also to the heavy destruction of jobs held by young people, with the dissolution of temporary contracts, while at the same time employment rates among older workers were increasing (Chart 3).…”

“…Gnocchi et al (2014) also find that reforms reducing EPL involve an increase in the volatility of employment. Furthermore, Casado, Fernández-Vidaurreta and Jimeno (2015), looking at worker flows and at the socio-demographic composition of these flows based on micro data from the European Labour Force Survey, find that during the Great Recession a higher proportion of flexible temporary contracts were associated with fewer transitions of young and middle-aged workers out of unemployment.…”

Unemployment and the role of supranational policies

“…As shown in one study, the rise in unemployment was due both to a youth hiring freeze and to heavy destruction of those jobs held by young people [3]. Since 2009, alongside low educational attainment and lack of skills, younger age has been associated with higher probability of losing a job and lower likelihood of moving from unemployment to employment, especially in countries where the rise in unemployment has been highest.…”

Long-Lasting Consequences of the European Crisis

“…Assuming some plausible parameter values, merely for illustrative purposes, the factor in the relationship between the variation in the natural rate and the proportional change in the debt-to-income ratio is of the order of 0.2. 10 Thus, for a reduction in the initial debt-to-income ratio of the middle generation of 10%, the natural rate would fall by 2 percentage points. Figure 1 gives the (annual) natural interest rate implied by equation (6) for alternative population and productivity growth rates and debt-to-income ratios, under plausible values for the rest of the parameters (time discount rate 2% per annum, intergenerational transfers of 8% of GDP and a labour share of 2/3).…”

“…9 Under a specification of the utility function giving rise to precautionary savings, there will be an additional negative effect on savings from increasing uncertainty over future productivity growth, price of capital, taxes and public debt ratios. 10 Taking α = 2/3, Intergenerational transfers, τ +b = 8%, a = 2%, and d = 0.1. Notice that the debt-to-income ratio is the debt to be paid by the middle generation over a long-period of time (say 30 years) relative to GDP per member of that cohort.…”