More than 169 million people were employed in the eurozone in the first quarter (Q1) this year—a new record—while the unemployment rate dropped to a multi-decade low of 6.3 per cent in June. However, economic growth remained subdued amid external headwinds.
Labour market reforms are improving participation rates and the quality of labour contracts in some European countries.
The arrival of artificial intelligence (AI) is reshaping the labour market, helping offset job losses in traditional manufacturing sectors. Some traditional manufacturing jobs have been relocated within Europe.
The rating agency expects labour costs to continue to fuel inflation more so than in previous decades, rendering a return to zero or negative interest rates in the eurozone unlikely.
Though job creation closely follows wealth creation, a gap between the two has built up in Europe since late 2022. Initially, S&P Global Ratings explained this gap as an anomaly, a disequilibrium to be resolved. As this has not yet occurred, it is investigating why employment dynamics have consistently outperformed economic activity in Europe over the past three years.
Labour market reforms have increased the participation of the working-age population in Europe and are also helping improve the quality of job contracts.
The share of employed persons with temporary contracts has decreased. The share of involuntary part-time jobs in total part-time employment is also down and long-term unemployment as a portion of total unemployment has decreased in the eurozone.
The resilience of the European labour market can also be explained by another fact: employers have been hoarding labour since 2022, i.e., they have hired or retained more people than they need, S&P Global added.
ALCHEMPro News Desk (DS)
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