Business Standard

The 11 per cent 

In Europe, job destruction creates inequality

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Viktoria Dendrinou
Economic inequality in the United States can be summed up in a single figure: one per cent. That refers to the super-rich at the top whose distance from the rest has widened in recent years. In the EU, the key number is 11 per cent, the unemployment rate. As more workers find themselves in prolonged spells of joblessness across the troubled continent, the rich-poor divide widens. This risks not only hampering growth, but also turning inequality into a politically explosive issue.

The job market is in worse shape than GDP. Euro zone output is only three per cent below its pre-crisis peak, but the number of jobless workers is 40 per cent higher. The 27 per cent unemployment rate in Greece and Spain is outrageously high, as is the 24 per cent for 15-24 year-olds across the EU.
 
Although GDP is turning upward, employment remains extremely weak. The recovery is set to be almost jobless. The main reason is structurally unsound labour markets. Thanks to restrictive laws and high taxes on employers, it is expensive and risky to create new positions. With productivity-increasing technological advances destroying jobs, the balance is tipped heavily against young and unskilled would-be workers. The problem of sclerotic labour markets is longstanding, but the crisis and slow recovery have made it acute, worsened by headcount freezes or cutbacks at governments, which are usually the largest employer in a country. What's more, the combination of increased long-term joblessness and an austerity-driven reduction in available benefits is pushing more people into durable poverty.

Meanwhile, in Europe, as in America, the wealthy are doing well. They are the first to benefit from a GDP recovery; current monetary policy has been favourable to them; and any talk of increasing marginal income tax rates has yet to translate into meaningful policies. So, as Europe's recovery picks up, the poor are likely to fall further behind the rich.

This is a dangerous development. A frustrated, increasingly young 11 per cent are more likely to back the politics of alienation, increasing the risk of instability. The divergences between countries can fuel international tensions, and shake one of the foundations of modern Europe - its firm social compact.

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First Published: Jan 29 2014 | 9:31 PM IST

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