EU Commission: a rise in wages and salaries may help create more jobs

The Eurozone unemployment rate in February remained stubbornly stuck at the high level of 11.9% since October 2013. According to Eurostat, the EU’s statistical service, the EU28 unemployment rate was 10.6% in February 2014, one decimal point lower than the 10.7% of January this year. Let’s dig a bit into unemployment. On an absolute number basis, unemployment in both cases retreated marginally. Eurostat estimates that 25.920 million men and women in the EU28, of whom 18.965 million were in the euro area, were unemployed in February 2014. Compared with January 2014, the number of persons unemployed decreased by 65 000 in the EU28 and by 35 000 in the euro area. Compared with February 2013, unemployment decreased by 619 000 in the EU28, and by 166 000 in the euro area. No growth no new jobs This newspaper has reported on many occasions that the widely advertised recovery of the Eurozone economy is a rather fictitious construction. Even the Commission recognizes that this recovery is far from touching the labour market. Eurozone suffered from a four year recession period until the second quarter of 2013. At the end of this period Eurozone’s GDP grew by a mere 0.3% during the second quarter of 2013. Then, in the third quarter of last year, growth retreated to a marginally positive 0.1%, to return again back to 0.3% during the last three-month period of October-December 2013. However, there is a parallel worrisome development. Last Monday, Eurostat announced its flash estimate for the Eurozone inflation in March at 0.5%, further down from 0.7% in February. This is the first time the tempo of consumer price change falls so close to zero during the last four years. This latest persistent tendency of falling inflation rate is not new though. It started in October last year with a 0.7% quote. Since then it keeps oscillating around that level but in March it reached 0.5%. This is the lowest inflation quote after the 2009 – 2010 period, at the heart of the last credit and real economy crisis. By its announcement of the flash estimate of March inflation, Eurostat has set the door wide open  to a deflation (negative inflation rates) trap for the 18 countries euro area. These are uncharted waters for Europe, a continent where most of its countries have suffered on many occasions from the opposite disease, namely high inflation. Now, the combination of disinflation (falling inflation rate) which may soon be transformed to deflation and the persistently high unemployment rate, could create a new difficult environment in Eurozone. Disinflation brings unemployment It will be something like an overall economic stagnation, with regional catastrophic zones of super high unemployment and deep recession. South Eurozone is not the only candidate for another long period of appalling economic conditions. Even core countries like Holland and France run the danger of returning to the crisis and recession experience of 2009-2012. The European Commission has implicitly pointed out that the less than adequate remuneration of labour may be at the heart of the current economic misery. The Commission recently noted that “Related to high unemployment and job instability, the rate of growth of nominal unit labour costs has continued to slow down in the euro area in 2013, increasing the risk of cost-push deflationary pressures that could damage prospects of a sustained recovery and the accompanying creation of jobs”. What the Commission says here is that an increase of the remuneration of labour will at the end help avoid not only the deflationary spiral, but it will support growth and the creation of more jobs. All in all, it seems that Berlin government would be obliged soon to relax its austere ideology and support an increase of wages and salaries in both the public and the private sectors of the economy, within and without the country.