Europe’s young feel chill of frozen labour market

It is a terrible time to be looking for a job in Europe, as many companies react to the coronavirus pandemic by freezing recruitment and leaving the career hopes of millions of young people in tatters.

Valerio Lofoco, a 31-year-old with a degree in political science who lives in Rome, said he felt as though he were in a “in a state of limbo”.

Before coronavirus hit, Mr Lofoco had been working on and off as a waiter and delivery man, earning less than €400 a month, while looking for a more specialised job. Now he has decided to “hit pause” three years after graduating.

“I was in my twenties when the economic crisis hit in 2008. This is the second global crisis facing my generation since I entered the job market,” he said.

Employment numbers in Italy show the heavy impact of the pandemic, with a drastic rise in the size of the inactive population — people who are not working and are not looking for a job. This is a sign that the labour market is frozen.

Line chart of Share of the labour force unemployed across the EU27, seasonally adjusted (%) showing The EU's youth unemployment problem

Italy’s unemployment rate surprisingly fell from 8 per cent in March to 6.3 per cent in April. But this was because many people moved into the inactive category, which rose by 746,000 and pushed up the country’s inactivity rate from 36.1 per cent to 38.1 per cent. The country’s overall employment numbers fell by 274,000. 

Even before the pandemic struck, Italy was the EU country with the highest proportion of people aged 20-34 who were neither in employment nor in education and training — at 27.8 per cent. That is well above the EU average of 16.4 per cent.

The situation facing graduates is harshest in southern European countries, such as Italy, Spain, Greece and France, where youth unemployment was already well above the EU average, the proportion of temporary or short-term jobs higher, and the economies more reliant on harder-hit sectors such as tourism.

The number of new positions advertised on the job search website Indeed in May were almost half the level of the previous year in both France and Spain.

Patrick Artus, chief economist at Natixis, said the results of a recent survey of employers by the French investment bank make for grim reading. “You know, 800,000 young people enter the French labour force each year and we risk up to half of them not finding jobs this time . . . already 60 per cent of French companies have frozen hiring,” he said.

Younger workers appear to have been disproportionately affected by the pandemic’s impact on labour markets. In April, 159,000 people aged 15-24 in the EU became unemployed — 40 per cent of all job losses across the bloc. 

Bar chart of Unemployment rate for those under 25, April 2020 or latest figure* (%) showing Youth unemployment high for many of Europe's major economies

“The economic evidence is quite conclusive: the youth unemployment rate often doubles the overall rate,” said Rafael Doménech, an economist at Spanish bank BBVA and a professor at the University of Valencia. “Young people who enter the labour market in times of crisis often suffer long-lasting negative consequences in terms of their wages.” 

In Spain, almost all of the country’s 834,000 total job losses in April affected people on temporary contracts, who make up more than a quarter of the workforce. More than half the Spanish people who lost their jobs were aged under 35.

Europe’s labour markets have been shielded from the full force of the pandemic by state-subsidised furlough schemes. These programmes have helped to avoid the sharp rise in jobless numbers seen in the US. But there are worries that many more European jobs could eventually be lost when the schemes expire or the companies go bust.

Unemployment in the eurozone peaked above 12 per cent during the region’s sovereign debt crisis in 2013, when youth unemployment hit a high of almost 24 per cent. After falling for seven years, overall eurozone unemployment started rising again in April, jumping from 7.1 per cent to 7.3 per cent. Youth unemployment rose even faster, increasing from 15.1 to 15.8 per cent.

The European Central Bank forecast this month that under its severe scenario, unemployment would rise to an all-time high of 12.5 per cent next year — implying 7m job losses.

The situation for graduates is also looking tough in Germany, despite Europe’s largest economy having almost full employment when the pandemic struck. The number of unemployed people aged 15-25 in Germany trebled year on year to 274,000 in May, according to the Federal Employment Agency.

“I have sent out 12 applications, but they were all rejected,” said Martin Prochacka, a 26-year-old who graduated last month in Japanese studies and history from Goethe University in Frankfurt. “I’m living from my savings and can carry on until July, but after that I will struggle to pay my rent. I just hope that companies will start to hire again soon.”

The number of jobs advertised for young professionals in Germany fell 37 per cent between the end of February and the end of April, according to research by Boston Consulting Group and Burning Glass Technologies. 

“A large number of organisations have recruitment bans and are only filling any vacant positions internally,” said Rainer Strack, a senior partner at BCG in Düsseldorf. “But if you look ahead to 2030, Germany will have a shortage of millions of employees. So students today should use this time to improve their digital skills as there will be fantastic opportunities in a few years.”

In the meantime, however, the stress of struggling to find a job is taking its toll on some students. Sylvia Kobus, an official at Studentenwerk Frankfurt-am-Main, which offers advice and support to the 80,000 students in the region around Germany’s financial capital, said requests for psychological help had risen sharply. 

“Since everything is currently taking place digitally, many students tell us about loneliness, others have major existential and financial concerns because they have lost their job or were unable to find a job at the start of the semester,” she said.

Additional reporting by David Keohane in Paris and Alexander Vladkov in Frankfurt