The employment and social situation in the EU remained very serious in the second quarter of 2012 with unemployment rising overall but also displaying significant differences between Member States, households’ financial situation deteriorating and child poverty increasing.

The EU has been in recession or on the verge of it since late 2011 and the overall economic sentiment is at its lowest level in three years. In this context, job-finding prospects remain poor compared to pre-crisis years. Greece and Austria recorded the highest number of hours worked by full-time employed persons in the first quarter of 2012, while Finland, Italy and Ireland recorded the lowest number.

These are amongst the main findings of the latest Employment and Social Situation Quarterly Review.

“Member States’ employment and social situations are diverging more than ever. This is why Member States should urgently implement the 2012 country-specific recommendations adopted last July and should put in place the measures outlined in the Commission’s Employment Package,” commented European Commissioner for Employment, Social Affairs and Inclusion László Andor. “The steady decline in households’ disposable income and growing child poverty reflect the existence of a ‘real social emergency crisis’ as referred to by President Barroso at the Jobs for Europe conference and underline the need for stepping up social investment across Europe. The Commission will address this in its forthcoming Social Investment Package.”

The second quarter contraction in the EU economy was the result of declining domestic demand although increased exports cushioned the fall. The decline affected most economic sectors and was especially marked in the construction sector, which contracted for the fourth consecutive quarter (-1.2 % from -2.4 % in the first quarter). Total industrial production decreased by -0.3 % after increasing in the first three months by 0.2 %.

Among the countries with negative growth during the second quarter, the economies of the Czech Republic, Spain and the United Kingdom contracted for the third consecutive quarter, whereas Italy, Cyprus and Portugal saw their economies shrinking for fourth quarter running. The growth rate turned negative in Belgium, Denmark, Finland and Slovenia in the second quarter. Second quarter economic activity increased further, mainly in the countries which were growing already in the first three months of 2012 with exception of Malta.

Especially worrying is the fact that unemployment is still on the rise and has climbed to 25.3 million, a historically high level, up by 2.6 million (+11.6%) compared to March 2011. At 10.4% at EU level, the unemployment rate rose in 17 Member States and disparities have again widened between the better-performing EU countries on the one hand and the “peripheral” countries on the other hand.

There is now an all-time record gap of 20.6 percentage points between the EU’s lowest (Austria, with 4.5 %) and highest (Spain, with 25.1 %) unemployment rates. The number of long-term unemployed has increased in 15 Member States since last year and reached 10.7 million. The long-term unemployed now account for 4.5 % of the active population (+0.4 percentage points over the year).

The unemployment rate is continuing to increase in the majority of Member States. In the three months to July 2012, it rose in 17 Member States. The highest rises were recorded in Greece (+1.4 pps – up to May 12 – to 23.1 %), Spain (+0.7 pp to 25.1 %), Latvia (+0.5 pp – up to June 12 – to 15.9 %) and Malta (+0.5 pp to 6.3 %).

Labour productivity growth in the European Union continued to weaken during the second quarter of 2012…

Italy and Malta are the only Member States (for which data is available) that recorded a decrease over four consecutive quarters. Nevertheless, in Malta the strong decrease in productivity recorded in the first quarter of 2012 (-3.4 %) slowed down notably in the second quarter (-0.8 %), while in Italy the decline strengthened from -0.8 % in the first quarter to -2.1 % in the second quarter.

In Malta the growth rate of the nominal unit labour cost fell from 4.4 % in the first quarter to 2.1 % in the second quarter, partly reflecting a softening in its negative productivity growth rate.

Gloomy outlook for the young

Youth unemployment is at a dramatic level – 22.5% in the EU in July – though it did not increase further in the second quarter. Twelve Member States recorded rates above the 25% mark, and only three remain under 10%: Austria, Germany and The Netherlands.

The gloomy outlook for the young reflects growing risks of long-term unemployment and lasting inactivity, as indicated by the rise in the number of young people neither in employment nor in education and training (NEET). The Commission is actively addressing youth unemployment and it will release later this year two initiatives, a Youth Guarantees proposal that young people get either a job or continue education or follow a training course within four months of leaving school, and a proposal for a Quality Framework for Traineeships.

Ssignificantly across Member States. Over the last year, the youth unemployment rate increased in all but eight Member States. While southern countries (Greece, Italy, Portugal, Spain and Bulgaria) recorded the highest year-on-year rises (more than 5 pps), the rate went down significantly in Lithuania and Latvia (by -6.8 and -2.8 pps) as well as in Finland, Malta and Belgium (down by roughly 1 to 2 pps).

Newly available detailed figures for 2011 shed further light on the broader labour market picture. Beside the unemployed, there were some 8.6 million underemployed part-time workers – predominantly women – and a further 10.9 million people were in a grey zone between inactivity and unemployment such as those who have given up searching for work.

Focusing on developments over the last year, around half the Member States have managed to reduce inactivity noticeably, with Italy, Hungary, Malta and the Netherlands (all with inactivity rates down 1 pps or more) being the most successful at getting people onto the labour market.

Declining household income

Gross household disposable income declined in two-thirds of EU countries between 2009 and 2011, with the largest drops recorded in Greece (15.7 %), Ireland (9 %) and Lithuania, Spain, Cyprus and Hungary (all more than 4 %). This evolution is in stark contrast with the situation observed in the Nordic countries, Germany, Belgium, Slovenia and France where welfare systems and more resilient labour markets have allowed overall incomes to continue increasing during the crisis. Nevertheless, the crisis affected significant shares of the population and caused poverty to rise also in these countries.

Unsurprisingly, the share of the EU population experiencing financial distress remains historically high. Citizens of the countries affected by the steepest income declines are also generally more likely to have negative perceptions of their social situation, as the 2012 Eurobarometer on the Social Climate shows.

Among those countries where the overall level of financial distress has declined over the year there has nevertheless been an increase among the lowest quartile households in Austria, Estonia and Malta, in contrast to Bulgaria and France where the upper quartile households were the ones to record a sizeable increase.

Child poverty

Child poverty is becoming an issue for a growing number of households because of insufficient earnings from parental work and inadequate support to households with children. The percentage of children at risk of poverty (after social transfers) range from around 10% in Denmark and Finland to over 20% in Spain, Greece, Bulgaria, Portugal, Italy, Romania, Latvia, Poland, Lithuania and Luxembourg. The size and effectiveness of child benefits varies considerably across the EU. Affordable childcare is a very important factor in allowing parents, and especially mothers, to work.

Weak or non-existent financial work incentives are found in a large number of countries, particularly for lone parents. In Bulgaria, the Czech Rep., Ireland, Latvia, Lithuania, Malta and Slovenia, lone parents with low prospective wages are better off staying at home and collecting welfare benefits than seeking employment. The cost of childcare acts as a major barrier to work and can be particularly influential in the determination of the net income gains for second earner.

Social expenditure and child poverty reduction: size and design In the EU in 2009, 28.4 % of GDP was spent on social protection, of which 2.3 % of GDP were earmarked as child/family benefits. Child benefits are the highest (relative to GDP) in Denmark, Luxembourg, Ireland, Finland and Sweden (3.2-4.2 % of GDP) and the lowest in Poland, Malta, the Netherlands and the Czech Republic (0.8-1.4 % of GDP).

In some countries, family benefits are favourable to the poor, i.e. the poorest quintiles of the population receive proportionally more family benefits than is their share of children (France , Malta, the NL, Poland, Portugal and the UK).

Growth disparities

Among the largest Member States, the economy continued to grow in Germany, France and Poland, whereas Italy and the UK saw further contraction. In the second quarter of 2012, Spain and Portugal registered sharp losses in economic activity and employment.

The Eurobarometer on social climate repeated every year since June 2009 monitors perceptions of the economic situation of households, the country and welfare state. The social climate survey can be useful in tracking the effects of the current crisis and could be regarded as a complement to the official socio-economic statistics such economic growth and unemployment.

As in previous years the index varies considerably between countries. The highest indices are found in the Benelux and Nordic countries, along with Austria and Germany. The Netherlands and Denmark have the highest indices (2.8 in each case), followed by Luxembourg (2.7), Sweden (2.6), Austria (2.5), Germany (2.0) and Finland and Belgium (both 1.5). Malta and the UK are the only other Member States with a positive index, although only marginally so (0.1 in each case). These same ten Member States have formed the top ten by overall social climate index in each of the four years of the survey.

The survey in full is available for download here.

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