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backGLOBALtalk July, 2012
Europe's Shrinking Labor Force
For decades, demographic experts have warned that Europe's declining birth rate would lead to a major decline in Europe's working-age population, something that has indeed occurred in most countries in the region. This declining working-age population was expected to lead to severe labor shortages in Europe as the supply of available workers would fail to meet the demand for workers. However, as Europe's economies have realized lower overall rates of growth over the past two decades, these labor shortages have not materialized and unemployment rates have risen to new highs.
Less Workers, But Less Jobs
Less Potential Employees: Like Japan, Europe faces a dire demographic future due to a prolonged period of very low birth rates. In almost all countries in Europe, working-age populations are shrinking, in some cases, at an alarming rate. For example, Germany's working-age population shrank by 1.5 million (2.9%) over the past decade alone and this trend will continue in the coming decades. In addition, much of the immigration into Europe in recent decades has consisted of unskilled workers who have struggled to find work as Europe's construction and service sectors have contracted in recent years. As a result, Europe's labor pool has shrunk, while also failing to meet the needs of more high-growth economic sectors.
Unemployment Rates Keep Rising: While the labor force in Europe continues to decline, unemployment rates have nevertheless soared during the current economic crisis in the region. In the Eurozone, the unemployment rate rose to 10.8% last month, its highest level in 15 years. In Southern Europe, unemployment rates in Spain and Greece already exceed 20% and they are also rising rapidly in countries such as Italy and Portugal. With governments dramatically cutting back on spending, and with businesses hesitant to invest in Europe during this crisis, it is highly likely that the region's unemployment rate will rise even higher over the course of 2012. As such, the long-awaited labor shortages in Europe will not materialize anytime soon.
Source: ISA (International Strategic Analysis) - GAI
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