Unemployment in the Eurozone, October 2012
Update: in this post I mention the Phillips-curve, the (supposed) relation between inflation and unemployment, and how the ECB uses this concept to rationalize its out-of-mandate labour market policies (via ‘conditionality’). This model supposes a more or less unified labour market. According to me, the differences in unemployment between Germany and Spain (see graph) show that there is no such thing in the Eurozone.
Well, unemployment increased again and continues to reach new heights. According to this recent ECB article, this is to a large extent due to ‘structural unemployment’, i.e. if people only retrained, accepted lower wages and more powerful managers everything would be all right. It’s nor really the mandate of a central bank to force ‘reforms’ of labour markets – but the ECB does try. To prove their point, they use the Phillips curve, which shows the relation between unemployment and inflation. However, inflation in the Eurozone has been flat. Which means that, according to this idea, all increases in unemployment are by definition by definition structural unemployment (chart 8 of the link). How credible is that, when you look at a country like Portugal (which did not know a spanish style housing bubble!), where unemployment only started to rise after they were included in the Eurozone (yes, in the eighties it was even higher, but even then it was quite a bit lower than today). Might the Euro itself be the main culprit and the main cause of unsustainable national credit bubbles (I write this from a nice pub in Frankfurt, where several people told me today that the ECB, at least during the Trichet years, indeed was really not interested in differences between countries at the senior level).