It’s not working

A positive summer belies deep-seated employment problems across Europe

by Nov 19, 2012 No Comments

For Harris Keillar, who runs an Edinburgh-based financial services recruitment company, October was, in the scheme of things, a good month. “October was busy. Companies are looking very positive and recruiting – which was not necessarily the case a few months ago,” Keillar said.

“Firms are hiring on the sales side, they’re realising they can’t just sit on their hands for ever and a day. They can see that there are various gaps in the market place that they can sell in to. They’re offering good permanent jobs,” he added.

Keillar sounded a note of caution, however, warning that while firms were recruiting, they were taking a long time over the interview process, with many candidates having multiple interviews before being offered positions.

“The downside is the interview process is taking a long time, that’s a sign that firms are behaving cautiously over hiring. There is a lot of window-shopping going on. But overall it’s good news and we’re expecting things to pick up a bit heading into Christmas and the New Year,” he said.

There are other, disparate, straws in the wind. The number of businesses in Scotland is at its highest level since 2000; the figure – 341,360 – is an increase of ten per cent on the previous year. “The rise has been driven by start-up enterprises,” said Enterprise Minister Fergus Ewing, “a sign that Scots are confident enough to go out and make the most of the opportunities available.”

Investment in Scotland’s early stage companies rose by 18 per cent in the first nine months of the year. Data from the ‘business angel’ organisation Linc Scotland showed an increase from £18.49m to £21.79m. Around £15.6m of the funding between January and September came from high net-worth individuals or syndicates investing in a return for equity in a firm.

Linc Scotland, which represents 19 syndicates, said its members had invested 36 per cent more – up from £7.4m to more than £10m – while public sector investment in the first nine months also increased, albeit marginally from £6.12m to £6.17m.

A fall in business insolvencies has been described as encouraging by the Enterprise Minister. Fergus Ewing welcomed a drop in both personal insolvencies and the number of companies either becoming insolvent or entering receivership. In the second quarter of the year, 274 firms either became insolvent or entered receivership, a drop of 24.1 per cent on the previous three months and more than a third lower than the same time last year, figures from the Accountant in Bankruptcy showed.

“However, we must not be complacent,” said Ewing. “We are focused on maintaining Scotland’s position as the most supportive environment for business in the UK. We are taking a distinct approach to growth and business support which includes a business rates package worth over £540 million a year, which has reduced or removed business rates for three in five business premises across Scotland.”

According to Professor Brian Ashcroft, the Strathclyde University economist, Scotland’s economy will return to growth next year but its performance will be “lacklustre for some time”. He made the prediction as the university’s Fraser of Allander Institute think-tank published its latest forecast earlier this month.

While the UK as a whole has come out of recession and returned to economic growth, the think-tank is predicting GDP north of the border will shrink by 0.1 per cent this year. It anticipates economic growth of 1.3 per cent next year, rising to 2.2 per cent for 2014. The institute previously said it expected economic growth to be stronger and had now revised down its forecasts against a “background of weakening domestic and foreign demand”.

“We shall see growth return but it will continue to be lacklustre for some time,” said Ashcroft. “Scotland may gain some competitive advantage from our apparently better productivity performance than the UK. But without a strong upturn in demand, the effect on growth of improved supply-side efficiency is like pushing on a string.”

And last Wednesday, The Bank of England said the strong performance of the economy during the summer was a one-off. It predicted a fall in output in the final three months of 2012, halved its growth forecast for 2013 to just 1 per cent and said national output would still be below its pre-crisis peak as the seventh anniversary of the economic downturn neared.

The Bank of Scotland had earlier said there had been virtually no growth in Scotland’s private sector economy amid manufacturing job losses and reduced demand for Scottish exports in Europe. The rising price of energy, fuel and food has also driven up costs for businesses, the bank’s monthly Purchasing Managers Index (PMI) for October noted.

The manufacturing sector remained the hardest hit by the economic stagnation, although there are signs that the decline is slowing.  Scotland’s overall manufacturing output in October fell for the fourth month in a row, the longest continuous period of decline since the 2008/09 recession. Manufacturing firms recorded both redundancies and the non-replacement of voluntary leavers over the month, although the overall rate of job losses was said to be “marginal”. Reduced demand in Europe was blamed by manufacturers for a substantial decrease in export orders.

Addressing students at Edinburgh University, László Andor, European Commissioner responsible for Employment, Social Affairs and Inclusion, observed: “The macro-economic situation in Europe continues to be extremely challenging. A number of member states are in a double-dip recession and labour markets are in a crisis not seen in the EU for at least two decades.

“What is more, the outlook is not getting better. The European Commission’s autumn forecast projects GDP growth in 2013 to be only 0.4 per cent in the EU27 [European Union] and 0.1 per cent in the euro area. Employment in the EU27 is projected to fall by -0.8 per cent this year and by another -0.5 per cent next year.

“Europe was experiencing a mild recovery in 2010 and early 2011, but for more than a year now, growth has been zero or negative, and unemployment in the EU27 has risen from some 23 million in mid-2011 to nearly 26 million at present, and it is projected to rise still further during next year.

“The number of long-term unemployed has also increased since last year and reached 10.7 million, which accounts for 4.5 per cent of the active population. And a particularly alarming aspect of joblessness in Europe is youth unemployment which stands at a historical high of 22.8 per cent as of September 2012.”

Andor said austerity measures and far-reaching structural reforms undertaken by most European countries had not been sufficient to achieve stabilisation in financial markets or decrease sovereign bond yields for the so-called peripheral countries. Actions of the European Central Bank had helped “but no bond-buying programme can – on its own – assure financial markets about the irreversibility of the euro when the underlying economic developments across the economic and monetary union are so different.”

Unemployment figures are not only worrying because they are high, said Andor, but also because disparities in unemployment rates have widened between the better-performing EU countries on the one hand and the “peripheral” countries on the other hand. There is now a record gap of 20.6 percentage points between the EU’s lowest – Austria, with 4.5  per cent – and highest – Spain, with 25.1  per cent – unemployment rates.

“The persistently worsening employment situation represents the biggest worry for European citizens and governments; especially that financial situation of many European households has drastically deteriorated,” said Andor. “Lower growth expectations, increased disparities across member states, vulnerability and lack of trust in the political system are threatening social cohesion, economic development and political stability in Europe.”

He said that was why “effective socio-economic governance at both EU and national levels is more urgent today than it has ever been before. This is why the Economic and Monetary Union 2.0 which Europe is trying to build and for which a roadmap should be adopted by the December European Council, needs to have a clear employment and social dimension.”

The European employment strategy has been an integral element of ‘Europe 2020′, the union’s growth strategy. Since its inception in 1997, the employment element has been based on monitoring of labour market performance and policy actions of individual member states, and on peer pressure among them.

“However, the crisis has taught us that we need to ensure a closer coordination of employment policies, to ensure good functioning of labour markets and to make sure that the workforce everywhere in Europe can put their skills to productive use, creating economic value and household income. It is for this reason that we have pushed forward for reinforced governance tools to improve this work.”

The EC’s ‘Employment Package’ published last April was a response to the urgency of the employment situation in Europe. It set out an agenda for building a job-rich recovery and making progress towards meeting the 75 per cent employment target agreed within the Europe 2020 strategy. “The Employment Package puts forward a new jobs-centred approach where a dynamic European labour market functions as a source of sustainable and inclusive growth,” said Andor.

“Let’s not forget that Europe’s workforce is a, if not the, major source of growth, and we need to do all we can to ensure that it realises its potential. We need to invest in people’s skills, because our present economic crisis in combination with longer-term structural trends necessitates a massive reallocation of human resources within the economy from activities that are not sustainable to those that are.

“We need to invest in skills because Europe’s workforce is ageing and shrinking and the only way we can maintain prosperity in the years and decades to come is by increasing employment rates and improving productivity. And we need to invest in skills because despite today’s serious unemployment situation, there are sectors and occupations in member states or regions where vacancies are unfilled due to a lack of qualified workers.”

Andor said that in order to help orientate skills investments within the EU’s member states and regions, the EC will launch an ‘EU Skills Panorama’ next month which will present information from both EU and member state sources on short- and medium-term skills needs, supply and mismatches.

He said: “An agreement [this month] on a strong and focused EU budget, and in December on a roadmap bringing the Economic and Monetary Union finally on a solid footing will be essential for ending Europe’s employment and social crisis.”

Will Peakin Will Peakin

Beginning as a reporter on weekly newspapers in the North-East of England, Will moved to Glasgow and worked as a freelance for a number of UK national newspapers. In 1990 he was appointed News Editor of Scotland on Sunday and in 1995, Scotland Editor of The Sunday Times. In 1999, he and his family moved to the south-west of France where he wrote for The Sunday Times Magazine. Returning to Scotland in 2002, he was Assistant Editor (Features) and Deputy Editor at The Scotsman before joining Holyrood Magazine in 2004. He writes for the magazine's business pages and edits its series of...

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