European Unemployment: Outcomes and Outlook Analysis

 
EUROPEAN UNEMPLOYMENT:
OUTCOMES AND OUTLOOK
 
 
 
 
 
 
Prakash Loungani
Advisor, Research Department, IMF
Co-Chair,  Jobs & Growth Working Group, IMF
 April 17, 2013
V
IEWS
 
EXPRESSED
 
ARE
 
THOSE
 
OF
 
THE
 
PRESENTER
 
AND
 
SHOULD
 
NOT
 
BE
 
ASCRIBED
 
TO
 
THE
 IMF .
 
I thank Ezgi Ozturk for excellent research assistance.
 
Outline
 
1.
  
Unemployment: outcomes and outlook
 
 
2.
  
Diagnosis: cyclical or structural?
 
 
3.
  
IMF advice
 
 
 
 
 
1.
 
European Unemployment
 
Outcomes: Dire
Outlook: Dire
 
Unemployment Rate:
2012
 
Change in Unemployment Rate:
2012-2007
Euro Area GDP Growth Forecasts
in 2007
Euro Area Unemployment Rate Forecasts
in 2007
 
Unemployment Rate:
2013 WEO Forecast
 
2.  Diagnosis:
Cyclical or Structural
 
Largely cyclical
Risk of turning structural (“hysteresis”)?
 
A Debate since the 1970s …
 
“There is sometimes 
the
naïve belief that
unemployment must be
due to a defect in the labor
market
, as if the hole in a
flat tire must always be at
the bottom, because that is
where the tire is flat”
(Solow, 2000).
 
"It takes a heap of
Harberger triangles to fill an
Okun's gap.” (Tobin, 1977)
 
“We 
impute the higher
[European] unemployment
to welfare states' diminished
ability to cope with more
turbulent economic times
,
such as the ongoing
restructuring from
manufacturing to the service
industry, adoption of new
information technologies,
and a rapidly changing
international economy. “
 
(Ljungqvist and Sargent,
1998)
 
Initial increase cyclical rather than structural
 
Greater uncertainty about relative proportions now, but
remains largely cyclical in our view
Beveridge curve quite stable; moreover shifts may
not be sign of increase in natural rate (Diamond
2013)
Other measures of mismatch back to normal
Lack of deflation not a sign of small
unemployment gap
 
Stability of Okun’s Law (even during the Great
Recession) suggests jobs will return if the growth
returns.
Hence focus of IMF policy recommendations remains on
getting growth back
 
 
 
 
Unemployment during the Great Recession
Unemployment during the Great Recession
 
11
11
 
Stability in Beveridge Curve in Most Countries
(relative to past changes)
 
Graph shows average percent point deviation in the unemployment rate.
Source: Hobijn and Sahin (2012)
 
12
 
Correlation between Change in
Unemployment and Change in GDP
(2012, in percent)
 
Correlation between Change in
Unemployment and Change in GDP
(2012, in percent)
 
3.  IMF Advice
 
 
Framework
Framework
 
Large increase in unemployment in advanced economies
during the crisis
Cyclical or structural unemployment?
How to achieve the relative price adjustment in
periphery Euro countries?
Can labor market reforms reduce the natural
unemployment rate and raise potential growth?
 
Recent Staff Discussion Note (Blanchard, Jaumotte,
Loungani) looks at IMF advice in this light
 
16
16
 
Diagnosis that unemployment problem is largely cyclical
has framed IMF advice on labor markets
 
Fiscal stimulus and monetary easing early in the crisis
 
Now, fiscal consolidation
should be gradual, with credible medium-term plans
 
Effects of fiscal consolidation on growth should be
offset by other measures to the extent possible
Continued ease in monetary policies
Financial sector repair & reform
 
 
Recommendations:  Monetary & Fiscal Policy
Recommendations:  Monetary & Fiscal Policy
 
17
17
 
IMF leadership on fiscal issues widely recognized …
 
 
How the IMF became the friend
who wants us to work less and
drink more
  
-- Washington Post
  
April 16, 2013
 
 
“It is to the credit of the
economists at the Fund that their
recommendations to
policymakers have adapted to
this strange world we’re living in
rather than sticking with their
more normal, doctrinaire
advocacy of monetary and fiscal
restraint.”
IMF Renews Push Against Austerity
 
 
IMF leadership on fiscal issues widely recognized …
 
 
How the IMF became the friend
who wants us to work less and
drink more
  
-- Washington Post
  
April 16, 2013
 
 
“It is to the credit of the
economists at the Fund that their
recommendations to
policymakers have adapted to
this strange world we’re living in
rather than sticking with their
more normal, doctrinaire
advocacy of monetary and fiscal
restraint.”
IMF Renews Push Against Austerity
 
-- Wall Street Journal
April 17, 2013
 
“IMF Renews Push Against Austerity”
 
 
“ … the International Monetary Fund called on countries that can afford it --
including the U.S. and Britain -- to slow the pace of their austerity measures.”
 
 
“The fund warned that "overly strong" belt-tightening in the U.S. will slow growth
this year. Across-the-board government spending cuts, known as the sequester,
were the "wrong way" to shrink the budget deficit, it said in its semiannual report
on economic growth. Those cuts should be replaced by more targeted reductions
that would take effect further down the road -- after the economy gains strength,
the report said.”
 
 
“The U.K. government, which in 2010 embarked on a closely watched effort to
escape its slump through tax increases and spending cuts, also should consider
easing up on its austerity drive amid a weak recovery there, the IMF said. And it
warned euro-area policy makers against focusing too much on hitting tough deficit
targets, saying they risked further deepening their downturn.
 
“IMF Renews Push Against Austerity”
 
 
“ … the International Monetary Fund called on countries that can afford it
-- including the U.S. and Britain -- to slow the pace of their austerity
measures.”
 
 
“The fund warned that "overly strong" belt-tightening in the U.S. will slow
growth this year. Across-the-board government spending cuts, known as
the sequester, were the "wrong way" to shrink the budget deficit, it said in
its semiannual report on economic growth. Those cuts should be replaced
by more targeted reductions that would take effect further down the road
-- after the economy gains strength, the report said.”
 
 
“The U.K. government, which in 2010 embarked on a closely watched
effort to escape its slump through tax increases and spending cuts, also
should consider easing up on its austerity drive amid a weak recovery
there, the IMF said. And it warned euro-area policy makers against
focusing too much on hitting tough deficit targets, saying they risked
further deepening their downturn.”
 
“IMF Renews Push Against Austerity”
And it warned euro-area policy makers against focusing too much
on hitting tough deficit targets, saying they risked further
deepening their downturn.
 
"Fiscal adjustment needs to proceed gradually, building on
measures that limit damage to demand in the short term," the IMF
said.
 
The IMF also called on countries like Germany that have
traditionally relied on exports for growth to lift spending to
stimulate their economies and, the IMF hopes, imports from the
country's struggling neighbors.
 
"There is a need for higher demand" in countries with big trade
surpluses, IMF Managing Director Christine Lagarde said in a speech
last week. "For countries in Northern Europe, like Germany, it
means doing more to boost investment."
 
Extension of unemployment benefits
Iceland, Greece
But reduction in Portugal
 
Targeted interventions to help some groups
Youth; Low-skilled; Long-term unemployed (see chart that
follows)
 
Move away from duality
Too late to stop layoff of temporary workers
But reduction in employment protection on permanent contracts
could help hiring as recovery takes hold
 
Recommendations:  Labor Market Policies
Recommendations:  Labor Market Policies
 
23
23
 
‘Recovery’ differs across groups
 
24
 
In some Euro area countries, need reduction in
relative wages
 
Best way to achieve would be through national
tripartite agreement
Experience of Latvia, Ireland, Greece
 
Without such an agreement
More flexibility in wage-setting
Reduction in public sector wages
Reduction in minimum wage
Fiscal devaluations
 
Higher inflation in North relative to South
 
 
 
 
Competitiveness
Competitiveness
 
25
25
 
Higher potential growth and lower natural rate of
unemployment desirable
 
Product market reforms
essential for medium-run but can hurt in the short-run
 
Labor market reforms
move away from duality
more flexible wage-setting
Reduce tax distortions to raise participation, particularly for females
Raising retirement age and adjusting benefits to raise participation
of older workers
 
 
Medium-run Growth
Medium-run Growth
 
26
26
Slide Note
Embed
Share

Prakash Loungani, an advisor at the IMF, presents a comprehensive analysis of European unemployment rates, outlining the dire outlook and discussing whether the issue is cyclical or structural. The presentation includes data on unemployment rates in various European countries, changes in unemployment rates from 2007 to 2012, Euro Area GDP growth forecasts, and Euro Area unemployment rate forecasts. The focus is on understanding the current state of European unemployment and providing insights into potential solutions. IMF recommendations are also discussed.

  • European Unemployment
  • IMF
  • Analysis
  • Euro Area
  • Outlook

Uploaded on Sep 24, 2024 | 0 Views


Download Presentation

Please find below an Image/Link to download the presentation.

The content on the website is provided AS IS for your information and personal use only. It may not be sold, licensed, or shared on other websites without obtaining consent from the author. Download presentation by click this link. If you encounter any issues during the download, it is possible that the publisher has removed the file from their server.

E N D

Presentation Transcript


  1. EUROPEAN UNEMPLOYMENT: OUTCOMES AND OUTLOOK Prakash Loungani Advisor, Research Department, IMF Co-Chair, Jobs & Growth Working Group, IMF April 17, 2013 VIEWSEXPRESSEDARETHOSEOFTHEPRESENTERANDSHOULDNOTBEASCRIBEDTOTHE IMF . I thank Ezgi Ozturk for excellent research assistance.

  2. Outline 1. Unemployment: outcomes and outlook 2. Diagnosis: cyclical or structural? 3. IMF advice

  3. 1. European Unemployment Outcomes: Dire Outlook: Dire

  4. Unemployment Rate: 2012 30 25 20 15 10 5 0 Denmark Germany France Ukraine Latvia Ireland Croatia Bulgaria Estonia Slovenia Finland Czech Republic Spain Portugal Albania Lithuania Italy Poland United Kingdom Sweden Belgium Serbia Hungary Romania Moldova Austria Turkey Greece Norway Netherlands Switzerland Slovak Republic

  5. Change in Unemployment Rate: 2012-2007 20 15 10 5 0 -5 France Ukraine Latvia Romania Estonia Croatia Bulgaria Slovenia Czech Republic Finland Turkey Lithuania Portugal Italy United Kingdom Denmark Albania Sweden Belgium Spain Serbia Hungary Moldova Poland Austria Germany Ireland Norway Greece Netherlands Switzerland Slovak Republic

  6. Euro Area GDP Growth Forecasts in 2007 3 2 1 0 -1 -2 -3 -4 -5 2008 2009 OECD EO (December 2007) WEO (October 2007) Actual

  7. Euro Area Unemployment Rate Forecasts in 2007 12 10 8 6 4 2 0 2008 2009 OECD EO (December 2007) WEO (October 2007) Actual

  8. Unemployment Rate: 2013 WEO Forecast 30 25 20 15 10 5 0 Denmark Germany France Ukraine Ireland Latvia Croatia Bulgaria Estonia Slovenia Czech Republic Finland Portugal Albania Lithuania Italy Poland United Kingdom Belgium Sweden Serbia Spain Hungary Turkey Romania Moldova Austria Greece Norway Netherlands Switzerland Slovak Republic

  9. 2. Diagnosis: Cyclical or Structural Largely cyclical Risk of turning structural ( hysteresis )?

  10. A Debate since the 1970s We impute the higher [European] unemployment to welfare states' diminished ability to cope with more turbulent economic times, such as the ongoing restructuring from manufacturing to the service industry, adoption of new information technologies, and a rapidly changing international economy. (Ljungqvist and Sargent, 1998) There is sometimes the na ve belief that unemployment must be due to a defect in the labor market, as if the hole in a flat tire must always be at the bottom, because that is where the tire is flat (Solow, 2000). "It takes a heap of Harberger triangles to fill an Okun's gap. (Tobin, 1977)

  11. Unemployment during the Great Recession Initial increase cyclical rather than structural Greater uncertainty about relative proportions now, but remains largely cyclical in our view Beveridge curve quite stable; moreover shifts may not be sign of increase in natural rate (Diamond 2013) Other measures of mismatch back to normal Lack of deflation not a sign of small unemployment gap Stability of Okun s Law (even during the Great Recession) suggests jobs will return if the growth returns. 1 1

  12. Stability in Beveridge Curve in Most Countries (relative to past changes) Graph shows average percent point deviation in the unemployment rate. Source: Hobijn and Sahin (2012) 12

  13. Correlation between Change in Unemployment and Change in GDP (2012, in percent) 7 All European Countries 6 5 Change in Unemployment 4 3 2 1 0 -1 -2 -3 -8 -6 -4 -2 0 2 4 6 Real GDP Growth

  14. Correlation between Change in Unemployment and Change in GDP (2012, in percent) 7 Euro Area 6 Change in Unemployment Rate 5 4 3 2 1 0 -1 -2 -3 -8 -6 -4 -2 0 2 4 Real GDP Growth

  15. 3. IMF Advice

  16. Framework Large increase in unemployment in advanced economies during the crisis Cyclical or structural unemployment? How to achieve the relative price adjustment in periphery Euro countries? Can labor market reforms reduce the natural unemployment rate and raise potential growth? Recent Staff Discussion Note (Blanchard, Jaumotte, Loungani) looks at IMF advice in this light 1 6

  17. Recommendations: Monetary & Fiscal Policy Diagnosis that unemployment problem is largely cyclical has framed IMF advice on labor markets Fiscal stimulus and monetary easing early in the crisis Now, fiscal consolidation should be gradual, with credible medium-term plans Effects of fiscal consolidation on growth should be offset by other measures to the extent possible Continued ease in monetary policies Financial sector repair & reform 1 7

  18. IMF leadership on fiscal issues widely recognized How the IMF became the friend who wants us to work less and drink more -- Washington Post April 16, 2013 IMF Renews Push Against Austerity It is to the credit of the economists at the Fund that their recommendations to policymakers have adapted to this strange world we re living in rather than sticking with their more normal, doctrinaire advocacy of monetary and fiscal restraint.

  19. IMF leadership on fiscal issues widely recognized How the IMF became the friend who wants us to work less and drink more -- Washington Post April 16, 2013 IMF Renews Push Against Austerity -- Wall Street Journal April 17, 2013 It is to the credit of the economists at the Fund that their recommendations to policymakers have adapted to this strange world we re living in rather than sticking with their more normal, doctrinaire advocacy of monetary and fiscal restraint.

  20. IMF Renews Push Against Austerity the International Monetary Fund called on countries that can afford it -- including the U.S. and Britain -- to slow the pace of their austerity measures. The fund warned that "overly strong" belt-tightening in the U.S. will slow growth this year. Across-the-board government spending cuts, known as the sequester, were the "wrong way" to shrink the budget deficit, it said in its semiannual report on economic growth. Those cuts should be replaced by more targeted reductions that would take effect further down the road -- after the economy gains strength, the report said. The U.K. government, which in 2010 embarked on a closely watched effort to escape its slump through tax increases and spending cuts, also should consider easing up on its austerity drive amid a weak recovery there, the IMF said. And it warned euro-area policy makers against focusing too much on hitting tough deficit targets, saying they risked further deepening their downturn.

  21. IMF Renews Push Against Austerity the International Monetary Fund called on countries that can afford it -- including the U.S. and Britain -- to slow the pace of their austerity measures. The fund warned that "overly strong" belt-tightening in the U.S. will slow growth this year. Across-the-board government spending cuts, known as the sequester, were the "wrong way" to shrink the budget deficit, it said in its semiannual report on economic growth. Those cuts should be replaced by more targeted reductions that would take effect further down the road -- after the economy gains strength, the report said. The U.K. government, which in 2010 embarked on a closely watched effort to escape its slump through tax increases and spending cuts, also should consider easing up on its austerity drive amid a weak recovery there, the IMF said. And it warned euro-area policy makers against focusing too much on hitting tough deficit targets, saying they risked further deepening their downturn.

  22. IMF Renews Push Against Austerity And it warned euro-area policy makers against focusing too much on hitting tough deficit targets, saying they risked further deepening their downturn. "Fiscal adjustment needs to proceed gradually, building on measures that limit damage to demand in the short term," the IMF said. The IMF also called on countries like Germany that have traditionally relied on exports for growth to lift spending to stimulate their economies and, the IMF hopes, imports from the country's struggling neighbors. "There is a need for higher demand" in countries with big trade surpluses, IMF Managing Director Christine Lagarde said in a speech last week. "For countries in Northern Europe, like Germany, it means doing more to boost investment."

  23. Recommendations: Labor Market Policies Extension of unemployment benefits Iceland, Greece But reduction in Portugal Targeted interventions to help some groups Youth; Low-skilled; Long-term unemployed (see chart that follows) Move away from duality Too late to stop layoff of temporary workers But reduction in employment protection on permanent contracts could help hiring as recovery takes hold 2 3

  24. Recovery differs across groups Youth (aged 15-24) Older workers (aged 55-64) Low-skilled (aged 25-64) High-skilled (aged 25-64) 115.0 110.0 105.0 100.0 95.0 90.0 Ratio of each group's employment relative to overall employment, a OECD average, b 2008 Q1-2011 Q4, index = 100 at the start of the crisis 24

  25. Competitiveness In some Euro area countries, need reduction in relative wages Best way to achieve would be through national tripartite agreement Experience of Latvia, Ireland, Greece Without such an agreement More flexibility in wage-setting Reduction in public sector wages Reduction in minimum wage Fiscal devaluations Higher inflation in North relative to South 2 5

  26. Medium-run Growth Higher potential growth and lower natural rate of unemployment desirable Product market reforms essential for medium-run but can hurt in the short-run Labor market reforms move away from duality more flexible wage-setting Reduce tax distortions to raise participation, particularly for females Raising retirement age and adjusting benefits to raise participation of older workers 2 6

More Related Content

giItT1WQy@!-/#giItT1WQy@!-/#giItT1WQy@!-/#giItT1WQy@!-/#giItT1WQy@!-/#giItT1WQy@!-/#giItT1WQy@!-/#