FRANKFURT, Sept 21 Employment in the euro zone
is rising faster than expected and this may continue, but at a
cost to productivity and potentially to long-term economic
growth, European Central Bank research showed on Wednesday.
Employment in proportion to GDP growth is now rising as fast
if not faster than before the 2007 debt crisis, particularly in
places like Germany and Spain where labour market reform has
increased flexibility, the research said.
With euro zone unemployment still hovering around 10 percent
and youth unemployment above 20 percent, policymakers have been
concerned that a large part of a generation may fall out of the
labour market permanently, a costly legacy of the crisis that
weighs on state coffers and may take decades to resolve.
ECB research now indicates that countries are getting people
back to work quicker than earlier hoped, partly due to the
increasing popularity of part-time work and the rapid expansion
of services-based sectors, which tend to hire more people and
operate with a more flexible workforce.
The pre-crisis ratio of jobs to GDP growth, which was
roughly half a percent more employment for one percent of GDP
expansion, has improved in the past three years after a period
of disconnect, with Germany and Spain accounting for about
two-thirds of the gains since mid-2013, the research showed.
"Stronger employment growth has doubtless provided support
to household incomes, but has also further weakened aggregate
productivity growth, which was already notably weaker - even at
the sectoral level - than in the pre-crisis period on both sides
of the Atlantic," the ECB said.
"These common trends in productivity growth may imply risks
to the long-term growth outlook," it added.
The problem is that the bulk of the new jobs are in
services, where productivity growth is already modest, which
puts a drag on overall productivity.
Average hours worked are stagnating, so more people are
employed but work less than before the pre-crisis years, a sign
The shift in the economy toward services and more flexible
labour markets, however, suggest that stronger employment growth
could persist, the ECB added.
(Reporting by Balazs Koranyi; Editing by Tom Heneghan)