A Diverging Eurozone

I am sick today and had to cancel plans with a friend tonight. I decided to look at Eurozone unemployment rates to pass the miserable time.

According to the Friday Eurostat press release,

The euro area1 (EA16) seasonally-adjusted unemployment rate was 10.1% in November 2010, unchanged compared with October4. It was 9.9% in November 2009. The EU271 unemployment rate was 9.6% in November 2010, unchanged compared with October4. It was 9.4% in November 2009.

The Eurozone started growing again in Q3 2009. But since then, the regional labor forces show a sharp divergence in resource utilization, as measured by the unemployment rates: the weak (Periphery) from the strong (core).

Here’s how it looked in 2007 before the Eurozone entered recession.

The 2007 unemployment rates were quite similar in levels, where the differences in unemployment rates across the Eurozone are defined primarily by structural, rather than cyclical, factors.

Here’s how it looks now, where the weakness in resource utilization due to cyclical factors is hitting the Periphery hard compared to the core countries, especially Germany.

The chart above illustrates the change in the unemployment rate over the last two years using the September-November 3-month average for comparison. The countries are ranked from largest to smallest percentage increase in the unemployment rate over the two periods.

All of the PIGS (Portugal, Ireland, Greece, and Spain) have seen their unemployment rates rise by 57% (Spain) or more (+82% for Ireland). To the right of the Euro Area average, you have Germany and Luxembourg seeing their unemployment rates decline over the same period.

The divergence in labor force deterioration across the Eurozone since 2007 is quite striking.

Rebecca Wilder

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