Structural factors that contributed to unemployment in the Eurozone

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Structural factors

Structural unemployment occurs for numerous reasons. It’s usually due to a lack of requisite job skills among workers. It can also be caused by a lack of workers’ willingness to work because of existing low wage levels.

On the structural side, there’s a mismatch across the Eurozone’s labor markets. The magnitude of the job destruction varied across the 33 Eurozone countries. It also led to reduced job-finding rates, extended lengths of unemployment, and a higher share of long-term unemployment. The overblown construction sector’s strong sectoral downsizing could also be blamed.

structural unemployment in euro area

Other factors

The lack of redeployment opportunities for displaced, low-skilled workers is another factor. It’s evident in the growing disparity between the labor force’s skills and the skills employers are requiring.

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Estimates provided by international organizations—in particular, the European Commission, the Organization for Economic Co-operation and Development (or OECD), and the International Monetary Fund (or IMF)—suggest that the crisis caused an increase in structural unemployment across the Eurozone. Structural unemployment increased from an average—across the three institutions—of 8.8% in 2008 to 10.3% by 2013.

It also impacted the performance of exchange-traded funds (or ETFs) like the Vanguard FTSE Europe ETF (VGK), the iShares MSCI EMU Index Fund (EZU), and the SPDR EURO STOXX 50 ETF (FEZ). These ETFs track European equities. VGK invests in companies like Novartis AG (NVS) and HSBC Holdings Plc (HSBC).

Some countries in Europe, like Germany, don’t have a high rate of unemployment. Others countries, like Spain, weigh down the average. There’s a wide disparity in labor market flexibility among these regions. We’ll discuss the disparity in the next part of the series.

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