However, a “substantial” 720,000 additional people ‘inactive’ from work as large study finds a divide in EU labour market and among job-seekers

Labour markets in Southern Europe and the Baltic States were among those hit hardest last year by the pandemic, according to an Open Access study published in the peer-reviewed journal Applied Economics Letters.

The findings based on European Commission data on employment among 25 to 64-year-olds in EU countries are the first of their kind and provide important messages for policy-makers.

Main findings

Overall, the proportion of unemployed jobseekers remained ‘remarkably’ stable in 2020, as did the percentage termed ‘inactive’ – those who do not have a job either but are also not looking for one. However, the authors say some EU states are more susceptible to labour market disturbances than others and can learn from countries with robust economies.

Significant variations existed with sharper increases in inactive citizens in Spain, Italy and Greece.

In total, the percentage of inactive among the 25- to 64 years old rose from 20.0% to 20.3%. A small increase in percentage points but in the absolute number of citizens, this still implies an increase of about 720,000 additional inactive persons.

As for unemployment, the Baltic States experienced the highest growth and even Sweden dropping down the league table, with the authors drawing comparisons with the 2009 financial crisis in Europe.

Motivation

“The impact of this pandemic on the lives of citizens was enormous, as was the economic shock,” says author Professor Stijn Baert from Ghent University, Belgium.

“Most European countries didn’t receive a huge blow from Covid-19 in 2020. However, there are important differences between countries. Some EU states in particular the Baltic States are a lot more shock-prone than others and can learn from countries that digested the shock well in 2020.”

During a crisis, labour markets usually follow trends in real gross domestic product (GDP), the measure of what a country’s goods and services output was worth in a given year. The average real GDP drop in 2020 of 6.1% represented an almost unprecedented contraction.

A decline in demand for goods and services often translates into a drop in demand for labour. Therefore, previous research on short-term Covid effects has analysed labour market performance by tracking changes in unemployment in 2020 to early 2021, often country by country.

In addition to unemployment, this study examined inactivity. Inactivity has, just as unemployment, ‘major implications for public financing’ say the authors who suggest some people may have abandoned job hunting out of discouragement in the first months of Covid-19.

The Ghent University study also looked at changes among EU-27 country rankings for unemployment and inactivity rates between 2019 and 2020, spanning the period before the pandemic and when it began. The authors compared these rates with 2009 during the Great Recession when real GDP growth fell by 4.3% in Europe.

More results

Findings show:

• the proportion of inactive people (20.3%) overall in 2020 was over five times higher than the unemployed (5%).
• Greece had the highest unemployment (11.8%), with Czech Republic (1.9%) the lowest
• Italy was highest for inactivity (28.6%) with Sweden lowest (10.8%).

Unemployment in 2020 was only marginally higher on average compared with 2019 (5% vs 4.8%). But the authors say this belies the differences between EU countries with the Baltic States experiencing a substantial increase (above 1.5% on average) in 2019. Sweden dropped down the ranking following a 1.2% increase in people in search for work whereas Belgium, France and Slovenia moved up.

The trend was similar with inactivity – Spain (1.1%), Italy (1.5%) and Greece (1%) all saw rises. Interestingly, the Baltic States fared better overall for inactivity which even fell in Latvia (by 1.4%). Poland is described as a ‘unique case’ – unemployment and inactivity both fell slightly here despite the effect of the pandemic.

The authors say their EU member states labour market comparison bears ‘many similarities’ to 2009. Unemployment was worse overall in the Great Recession with a 1.4% rise in the ratio of unemployed people vs population, but similar patterns emerged for countries such as the Baltic States and Sweden.