Over the last few years the news have been assailing us on a nearly daily basis about the woes of the Greek and Spanish economies. The way unemployment has been skyrocketing in these two countries has grabbed people's imagination and filled many Europeans with fear and apprehension about the future.
Looking at the employment rate figures, I was surprised to see that both countries were actually doing better now than in the last decades of the 20th century, well before the global financial crisis and the euro crisis. Spain had 52.7% of people in employment in the 1980's, 51.8% in the 1990's, and 58.5% in 2011. Greece was more stable, with 54.8% in the 1990's and 55.6% in 2011. Either way, there are more people in work today than before the 2000's. Yet both Greece and Spain have over 27% of unemployment today, compared with roughly 10% before the crisis. How could that be ?
One possible explanation is that more women are working now that there were 20 or 30 years ago. I know for a fact that the percentage of working women rose dramatically in Spain after the death of general Franco in 1975, reaching a near parity with men in the early 2000's. I am not sure about Greece, but a similar phenomenon may have happened. In other words, the number of jobs has remained stable, and even slightly increased. It is the number of job seekers that has skyrocketed. It is undeniable that the crisis had an negative effect on employment, but judging from the real number of people in employment, Greece has lost only 6% of its working force and Spain 8% compared to their peak in 2007-8, just before the global credit crunch.
This would mean that about half of the increase in unemployment rates since 2008 were not directly caused by the crisis itself, but rather by more people wanting to work. Fear about the future could be one reason. Helping relatives could be another. Another possibility is that the lowering of salaries and tax increases have forced housewives in many families to start looking for a job to complement their husband's income to make ends meet or maintain the same lifestyle as before the crisis.
One way of seeing this whole situation is that the soar in unemployment rates has been caused at least as much by a change in mentalities as by job losses. Jobs have been destroyed by the financial crisis in all developed economies. Real estate prices and stock exchanges have declined almost everywhere in Europe from an all-time high in early 2008. People have lost money everywhere, but especially in countries that had an artificially inflated real estate market, like Ireland, Britain, Spain and Italy.
Employment rates reached an all time high in 2007-08 in all countries that experienced a real estate bubble. Those that managed to put a lid on their property market, like Germany, did not suffer from any decrease in employment rate. The correlation is actually pretty startling. The country that suffered the sharpest decline in property prices is Ireland. It is also the one that lost the most percentage points in real employment figures : nearly 10% from 2008 to 2011 (against 6% for Greece). Spain has the second largest real estate bubble burst, and it lost 8% points in employment rates from 2007 to 2011. In contrast, Germany gained 3.6% over the same period.
It doesn't seem to matter how well a country's economy is faring, nor how large or small its public debt is. Sweden has a healthy economy and a public debt at only 33% of GDP, but it lost 3.5% of employment rate immediately in the year from 2008 to 2009. Its real estate market did not experience a real bubble, but was over-inflated nonetheless. The case of Denmark is even more telling. With an economy as sound as that of Sweden, the only thing that really distinguished the two neighbours is the real estate market. Prices fell more sharply in Denmark and at the same time employment figures tumbled too. The Danish employment rate, once the highest in the world, fell from 77.9% in 2008 to 73.1% in 2011 - a drop of 5%, almost as much as in Greece. Even super-rich Norway lost nearly 3%.
Even though the US stock market recovered quicker than anywhere else, the USA also lost 4% of employment rate, mirroring the drop in real estate prices over the same period. Only countries like Germany, Switzerland and to a lower extent Austria, where property prices have barely increased over the last 20 years, have sustained a steady increased in employment rates throughout the crisis.
In conclusion, it seems that the financial crisis and euro crisis were both caused by a real estate bubble burst after all. In other words most countries had been living beyond their means with artificial money from speculation. What most of Europe is experiencing now is a market correction.
Looking at the employment rate figures, I was surprised to see that both countries were actually doing better now than in the last decades of the 20th century, well before the global financial crisis and the euro crisis. Spain had 52.7% of people in employment in the 1980's, 51.8% in the 1990's, and 58.5% in 2011. Greece was more stable, with 54.8% in the 1990's and 55.6% in 2011. Either way, there are more people in work today than before the 2000's. Yet both Greece and Spain have over 27% of unemployment today, compared with roughly 10% before the crisis. How could that be ?
One possible explanation is that more women are working now that there were 20 or 30 years ago. I know for a fact that the percentage of working women rose dramatically in Spain after the death of general Franco in 1975, reaching a near parity with men in the early 2000's. I am not sure about Greece, but a similar phenomenon may have happened. In other words, the number of jobs has remained stable, and even slightly increased. It is the number of job seekers that has skyrocketed. It is undeniable that the crisis had an negative effect on employment, but judging from the real number of people in employment, Greece has lost only 6% of its working force and Spain 8% compared to their peak in 2007-8, just before the global credit crunch.
This would mean that about half of the increase in unemployment rates since 2008 were not directly caused by the crisis itself, but rather by more people wanting to work. Fear about the future could be one reason. Helping relatives could be another. Another possibility is that the lowering of salaries and tax increases have forced housewives in many families to start looking for a job to complement their husband's income to make ends meet or maintain the same lifestyle as before the crisis.
One way of seeing this whole situation is that the soar in unemployment rates has been caused at least as much by a change in mentalities as by job losses. Jobs have been destroyed by the financial crisis in all developed economies. Real estate prices and stock exchanges have declined almost everywhere in Europe from an all-time high in early 2008. People have lost money everywhere, but especially in countries that had an artificially inflated real estate market, like Ireland, Britain, Spain and Italy.
Employment rates reached an all time high in 2007-08 in all countries that experienced a real estate bubble. Those that managed to put a lid on their property market, like Germany, did not suffer from any decrease in employment rate. The correlation is actually pretty startling. The country that suffered the sharpest decline in property prices is Ireland. It is also the one that lost the most percentage points in real employment figures : nearly 10% from 2008 to 2011 (against 6% for Greece). Spain has the second largest real estate bubble burst, and it lost 8% points in employment rates from 2007 to 2011. In contrast, Germany gained 3.6% over the same period.
It doesn't seem to matter how well a country's economy is faring, nor how large or small its public debt is. Sweden has a healthy economy and a public debt at only 33% of GDP, but it lost 3.5% of employment rate immediately in the year from 2008 to 2009. Its real estate market did not experience a real bubble, but was over-inflated nonetheless. The case of Denmark is even more telling. With an economy as sound as that of Sweden, the only thing that really distinguished the two neighbours is the real estate market. Prices fell more sharply in Denmark and at the same time employment figures tumbled too. The Danish employment rate, once the highest in the world, fell from 77.9% in 2008 to 73.1% in 2011 - a drop of 5%, almost as much as in Greece. Even super-rich Norway lost nearly 3%.
Even though the US stock market recovered quicker than anywhere else, the USA also lost 4% of employment rate, mirroring the drop in real estate prices over the same period. Only countries like Germany, Switzerland and to a lower extent Austria, where property prices have barely increased over the last 20 years, have sustained a steady increased in employment rates throughout the crisis.
In conclusion, it seems that the financial crisis and euro crisis were both caused by a real estate bubble burst after all. In other words most countries had been living beyond their means with artificial money from speculation. What most of Europe is experiencing now is a market correction.