Why Unemployment in Southern Europe remains in high levels

When the average annual unemployment rate in the EU is 6,8% and in Eurozone-19 is 8,2% the corresponding unemployment figure for the Southern Euro area member countries is moving to double and now three times (see chart below) and having theoretically exceeded all these member-countries the global financial crisis of 2008.

(Source: Eurostat, https://ec.europa.eu/eurostat/tgm/table.do?=tab=table&init=1&language=en&pcode=tps00203&plugin=1, 28/08/2019)

These figures show us that the wrong policies have obviously been implemented to resolve the unemployment issue.

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Others believe that with such high levels of unemployment, businesses in these countries of the Southern Eurozone will be in a more advantageous position in hiring the right staff to implement any of their business plans. But many jobs in businesses remain vacant for a considerable long time.

The reasons that hold up unemployment levels in the Southern Eurozone member countries

1. The phenomenon of brain drains. Following the hit of the global financial crisis of 2008, the Southern Eurozone member countries have experienced a dramatic level of unemployment. In cases such as youth, countries such as Greece and Italy have experienced unemployment of 20,4% (see chart below).

It is estimated that from 2009 to today at least 500000 Greeks (4,5% of the total population) of 20-35 years of age with possession of specialized knowledge were forced to flee abroad to find a better future.

The phenomenon of brain drains affected both Greek companies and the Greek economy in general because it left the dynamic part of the country’s workforce.

2. More employees who would have to retire, due to family and personal liabilities and a low level of pensions in relation to their salary choose to continue to work rather than retire by depriving themselves of valuable jobs by unemployed people and younger workers.

This is purely due to the financial crisis, which among other things slashed incomes, where many employees in retirement age have children who are unable to find work and with their work are the financial support of their children.

3. The policy of unemployment benefits. Many South Eurozone member countries’ governments in order to cope with the very high levels of unemployment that are translated into political costs for them have implemented allowances-benefit policies to unemployed for a long time.

Enough unemployed receive unemployment benefits, etc. and at the same time they complement this monthly income from ancillary work activities that move in the field of shadow economy and since the official offered monthly salary is not attractive.

Several businesses are served by this type of practice because they earn from non-payment of social security contributions for these activities.

4. A partial or complete lack of modern professional knowledge and skills from unemployed jobseekers. The lack of timely knowledge in first-line technologies for businesses such as information technology, artificial intelligence, innovation, etc., creates an even greater obstacle to the integration and absorption of human resources belonging to the ages (45-60 Years old).

5. A drastic increase in part-time from full-time jobs. From 2009 onwards due to the financial crisis, the economic environment has been characterized by a drastic increase in taxation, low business profitability, overdue loans growth, rigid labour markets with strong labour unions which, in coordination with governments, kept wages at a high level while keeping the levels of salaried employment low.

Companies to reduce their exposure to their low profitability and rigorous labour legislation that were pro-workers, were intended to create part-time jobs in a massive way in relation to the positions working full time, and always in combination with wage freezes or wage cuts for existing full time employees.

6. Inability to connect state unemployment and employment agencies to the real labour market. This is because in most cases these state organizations are not equipped with unemployed integration techniques in the labour market e.g. training of unemployed persons with systematic approach to businesses, inadequate employment incentives to businesses.

The subsidized work programs that they use as their established policy cover only opportunistic and seasonal types of needs of the companies participating in these programs. That is why companies do not renew most of these employment contracts at maturity.

7. Arbitrary increases the lower wage to reduce political costs and gain political benefit from governments. In Spain the minimum salary increased by 34% for the period (2017-2019).

The burden that businesses receive is disproportionate to the corresponding increase in their after-tax profitability, and sooner or later they make staff reductions (increase unemployment).

The minimum wage increases or decreases depending on what is prevailing each period in terms of demand and supply forces in the labour market and not through legislative governmental provisions. Businesses and according to demand for their products determine the job offer (supply in labour market).

Unemployment Problem solving Policies

For businesses

1. Continuous training for existing employees. Businesses and their employees are gaining in the long term.

2. Development of skills (soft skills) for the effective management of people and projects. According to the World Economic Forum (www.weforum.org) these skills include: ability to solve complex problems, creativity, negotiation, emotional intelligence, coaching people, managing work stress, etc.

3. Application of outsourcing so that companies reduce drastically part of their costs by transferring part of their work to external partners and to acquire necessary know-how and support. Even the states use to apply the practice of outsourcing when there is a shortage of skilled workers in an object of work.

For jobseekers

1. Professional flexibility. This is achieved through the choice to apply the unemployed knowledge and experience through new forms of employment, like self-employed work e.g. project contract, external business partner etc.

2. Continuous training in knowledge through e-learning programs, internet, seminars etc. With developments in technology, knowledge must be renewed every three years, otherwise the employee or unemployed person will not be able to follow the developments.

3. The youth should initially accept any job they are offered and given that they cannot find work about their studies, in order to integrate them into the labour market and regardless of size business that offers them job.

For the Eurozone member-states and for the states in general

1. Drastic reductions in public spending so that the annual expenditure in the central government budget never exceeds 15% of GDP by 4% of GDP per annum to involve payroll expenditure for civil servants. This reduction in public expenditure is achieved by:

a) Mass privatization scheme of state institutions and public enterprises.

b) Generalized use of outsourcing in the public sector and where it is feasible to apply.

c) Full technological modernization of the administration will reduce further jobs.

d) Dismissal of public servants.

2. The funds that will be saved annually should be channeled into the economy by applying equivalent fiscal value measures to reduce taxation, but also to direct them in education, healthcare, agriculture and the continued financing of skills development Human resources (unemployed).

This policy will motivate domestic businesses to invest further in order to increase their production.

Development based on improved skills and effective human resource management at society level will always function as a magnet to attract foreign investment in the country where its government implements these policies.