The purpose of this essay is to comment on Claire Jone’s article “Eurozone Employment Finally Surpasses the Pre-Crisis Peak.” This work was published by Financial Times on June 14th in 2017. It discusses the growth of employment in the eurozone, the tools which contributed to this result, and economic perils of the current situation. According to Jones, Eurostat reported present rates of employment surpassing the previous peak in 2008.
The author states that during the first quarter of the year, almost 155 million people were employed, and 5 million new jobs were created. Currently, the unemployment rate is 9,3%, and this number is the lowest for last eight years. In 2008, the eurozone was affected by the global financial crisis which resulted in economic recession, and it is only now European countries managed to recover. According to Jones, this process was facilitated by several factors, including low interest rates, a decrease in oil prices, a weak domestic currency, and rejection of government austerity. However, Jones cites the research of the European Central Bank which notes that underemployment rates are also high, and the quality of the new jobs also is not exceptional.
Now, it is important to define the terms “unemployment” and “undemployment.” In her book, “Economics for the IB Diploma,” Ellie Tragakes defines unemployment as a situation when people of working age actively seek job but remain unemployed (265). Low employment rates in Europe occurred due to the financial crisis of 2008 when aggregated demand plummeted. Tragakes states that this type of unemployment is called cyclical (271). When aggregated demand gets lower, it results in decrease of real GDP, and more workers get laid off (see fig. 1). “Underemployment” describes the situation when employed people of working age would like to work more, because they have a part-time job, or their job does not match their qualification (Tragakes 256). It is obvious that unemployment is bad for the economy, as it causes negative financial and social consequences. Nevertheless, underemployment also is perilous, because it wastes workers’ skills and resources which were spent on training them (Tragakes 256).
Therefore, the news about high rates of underemployment is alarming. Evidently, Europeans are not satisfied with their jobs now, and reports about the growth of employment should be taken critically. Although the eurozone countries managed to create 5 million new jobs, this effort appears to be not the most effective. Underemployed people do not get adequate wages, and it negatively affects eurozone. GDP is getting lower, aggregated demand falls, and the development of the eurozone’s economy becomes slower.
Jones’ article provides evidence for this statement, as it reports inflation rates and wages growth being low. Although it is known about the negative influence of high inflation rates, low inflation puts the economy at the risk of deflation. The consequences of the latter, according to Tragakes, include redistribution effect, business uncertainty, high menu costs, the growth of cyclical unemployment, and increased risk of financial crisis (282).
Jones cites the European Central Bank which claims that its easing monetary policy will improve the situation. The point of these actions is to increase aggregated demand and make firms hire more people who would be able to buy more goods, increasing the real GDP. The central bank has two tools to impact the economy, namely the money supply and the rate of interest. Tragakes defines the rate of interest as a percentage a borrower must pay for borrowing money (331). To stabilise the situation, reports Jones, the ECB decided to stop lowering the rate of interest in future.
Nevertheless, this policy will not be fully successful without paying attention to underemployment problem. Jones cites the ECB which came to a conclusion that a significant number of underemployed people is the reason of why wages grow slowly. Therefore, the authorities should define their terms more clearly when examining employment and unemployment rates. Indeed, the number of employed people is increasing, but no one addresses the problem of their satisfaction with their jobs. This situation lowers aggregated demand and decreases the effect of the monetary and fiscal policy of the eurozone.
Overall, the article of Claire Jones demonstrates that all elements of the economy are interrelated. Although the ECB and the governments of eurozone’s countries do their best to increase aggregated demand, they do not reach their aim. This is paradoxical given the increasing employment rates. High underemployment reduces positive outcomes of the eurozone’s recovery policy. Therefore, European firms need to pay more attention to the quality of their job offers. This will ensure the well-being of the eurozone.
- Jones, Claire. “Eurozone Employment Finally Surpasses the Pre-Crisis Peak.” Financial Times, 14 June 2017, www.ft.com/content/8daedad0-5101-11e7-a1f2-db19572361bb. Accessed 26 June 2017.
- Tragakes, Ellie. Economics for the IB Diploma. 2nd ed., Cambridge University Press, 2012.