Unemployment Rates Continue to Fall in EMU

The unemployment rate in the European Monetary Union (EMU) remained at 6.5% for the second month in a row. The unemployment rate for all of the EMU ranks in the lower one percentile of where that unemployment rate has resided since April 1994. Unemployment conditions in Europe across countries are excellent and quite low compared to their historic norms.

In November among the 12 early reporting European Monetary Union members in the table, only three reported an increase in their unemployment rate: Austria, Belgium, and Portugal. Ireland saw tick up in its unemployment rate in October.

In broad terms, over three months, the unemployment rate falls in six of these countries and rises in four. Over three months, unemployment rates fall in Finland, France, Italy, Spain, Greece, and the Netherlands. Over that same three months, unemployment rates rise in Austria, Belgium, Luxembourg, and in Portugal.

Over six months, the unemployment rate for the monetary union falls by 2.5 percentage points. The unemployment rate also falls in five countries: Belgium, France, Italy, Spain, and Greece. Over the same six months, the unemployment rate rises in six countries: Austria, Finland, Luxembourg, Ireland, Portugal, and the Netherlands.

Over 12 months, the trends are much clearer cut, but the unemployment rates fall broadly. For all of EMU, the unemployment rate falls by 0.6 percentage points. Over 12 months, the unemployment rate falls in all countries except for Austria, where it rises by 0.5 percentage points, Portugal where it rises by 0.2 percentage points, and in the Netherlands where it rises by one percentage point. Greece shows the largest drop in the unemployment rate over 12 months; its rate falls by 1.7 percentage points, followed by Italy where the unemployment rate falls by 1.2 percentage points, and by Ireland where the rate falls by 0.8 percentage points.

Ranking the unemployment rates from April 1994 shows only one country to have the unemployment rate above its historic median - that's Austria with the 68.9 percentile standing. All the rest of the monetary union members have standings below their 50th percentile. Luxembourg barely ducks under that mark with the standing at its 48.8 percentile and Greece has a 47.3 percentile standing. But after those three countries, the highest unemployment rate standing is Spain at its 30.2 percentile, followed by Portugal at its 20.1 percentile followed by Italy at its 16th percentile. Unemployment rates across Europe are, broadly, historically low.

There are still high unemployment rate countries in the EMU. Spain’s unemployment rate stands at 12.4%. Greece's unemployment rate stands at 11.4%. After that, Italy is at 7.8%, France is at 7%, Finland at 6.7%, and Portugal at 6.4% and so on. The low rankings in the face of some unemployment rates that are currently still numerically high remind us that there are still structural differences across the European Monetary Union. However, a number of countries that used to carry unemployment rates closer to 15% and 20% have seen a great deal of progress on that front and no country in the table has rates anything like that.

Of course, there are still concerns. And the monetary union is benefiting from this extended recovery from COVID but at the cost of inflation that is significantly above its target rate. The European Central Bank is raising interest rates and doing so at a rather measured pace. But there is still likely to be fallout across the EMU from the ECB’s actions. We just have not seen the effects yet. When central banks fight inflation, they slow aggregate demand. The reduction in aggregate demand growth sometimes results in an outright reduction in aggregate demand and usually produces increases in unemployment. Increases in unemployment help to reduce the inflation rate that the central bank is targeting. It's an unfortunate and painful process, but that's how it works. And we are looking for these effects to visit the European Monetary Union in 2023 as the ECB continues to hike rates.