In current times of high unemployment, low business investments, and low wage growth, job opportunities do not come easily. In a typical recession, government work provides a good substitute for private sector job loss. During an economic crisis, government jobs usually see increasing employment numbers, either due to stimulus or pent up demand filled by people that cannot find work in the private sector. This makes the current European crisis so difficult. The employment safety net of the public sector is failing as budget cuts made across Europe to satisfy investors are resulting in public sector job cuts. This situation is a first in the history of the Euro Area, as public sector jobs that usually continue to grow in times of recession (chart 1) are now on the decline.
Over the past year, only six countries in the Euro Area experienced public sector jobs increases. Not surprisingly, the countries that have held up relatively well throughout the crisis are Austria, Belgium, France, and Germany. All these countries increased public sector employment, but have also seen increases in private sector job growth as well. However, the countries experiencing significant private sector job declines are also the countries experiencing public sector job losses due to government cuts. In Greece, public sector jobs declined over 7 percent since the second quarter of 2011. Spain, Portugal, and Ireland also experienced significant job decline. Italy, in fact, is one of the few countries that faced declining public sector job growth in 2008, and is still shrinking its workforce in the public sector.
Looking at the impact on public sector jobs in the year after the Lehman Brothers bankruptcy, shows that most countries increased public sector jobs on a large scale after the crisis, which demonstrates why this phenomenon of lower public sector employment is special. This increase in public sector jobs during the peak of the world financial crisis helped the Euro Area have a relatively subdued job decline (chart 2). The result of this change in policy is that more people are now unemployed, and that this unemployment rate can continue to rise well into 2013. The amount of long-term unemployed will also be affected, which is related to the amount of people that fall out of the labor market. This situation has a negative effect on the amount of skilled people in the mid- to long-run, and on increasing government expenditure, as the amount of people on unemployment benefits will go up. It could also dampen demand and therefore have a negative effect on private sector jobs. A healthy recovery of the private sector would likely brush most of that away, but as the economic outlook for the Euro Area remains bleak, it looks as if employment in both the private and the public sector can be declining for a while to come, with all of the negative consequences that this situation brings.
Source: Eurostat, The Conference Board
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