ECB warns some eurozone jobs gone for good

Released on - Thursday,15 July , 2010 -22:23 28

The European Central Bank warned Thursday that some job losses caused by the economic crisis could be permanent and urged eurozone countries to speed up labour market reforms.

After employment fell by 2.6 percent between mid-2008 and late 2009, certain industrial sectors "may now need to be permanently downsized," the ECB said in its monthly bulletin for July.

The global crisis effectively reversed two years of job growth, the central bank added.

The sectors hit hardest were industry and construction, and after initially benefitting from real-estate booms, Ireland and Spain in particular then "suffered disproportionately large falls in employment," the report said.

It forecast that job losses could become entrenched, and that significant restructuring "will inevitably bring about permanent reductions in employment in these sectors."

German labour market economist Fabien Lindner from the Hans Boeckler Foundation predicted that Spain's construction sector would rebound owing to demographic growth however.

He also called for more fiscal stimulus, the opposite of what ECB officials now expect from eurozone member governments, saying public investment would raise overall growth and create jobs.

"We cannot wait for the next big crisis to happen to have some public infrastructure investment," Lindner told AFP, pointing to "huge problems at the moment" in Germany's education system and transport sector.

The eurozone unemployment rate rose from a March 2008 low of 7.8 percent to 10 percent by the end of May 2010, with the loss of around 3.9 million jobs.

"Without sectoral reallocation and greater wage flexibility, the euro area may take many years to generate sufficient employment growth to absorb those workers currently displaced," the ECB said.

Lindner, whose group is close to German unions, said: "If we had much higher overall GDP (gross domestic product) growth it would be much easier to transfer those people from construction and manufacturing sectors into other sectors."

Youth unemployment has been hit particularly hard, almost doubling to 20 percent for the 16-nation eurozone and reaching peaks of 40 percent in Spain, 35 percent in Slovakia and nearly 30 percent in Ireland and Italy.

Government reforms should now aim to restructure their economies, provide training for the unemployed and "improve the efficiency of job searching," the ECB report said.

"Employment growth will also depend on a restoration of competitiveness -- at firm, sectoral and national level," it concluded.