The euro area has been marked by companies retaining employees despite modest increases in aggregate demand, a practice known as worker hoarding. This strategy could lead to rapid layoffs if anticipated demand does not materialize. Given the steady growth in labor supply, including the rise in the labor force participation rate, if these conditions continue, there is a growing risk that the unemployment rate will rise.
Labor markets in the US, UK and euro area are under stress. The euro area faces increased vulnerability due to lower labor productivity and the potential for higher unemployment due to labor hoarding. While the US presents a robust demand-driven market, the UK suffers from weak demand and declining participation, with employment rates remaining low despite high vacancies.
In contrast, aggregate demand has recovered rapidly in the United States, which is the main driver of labor demand growth. However, a report on labor market resilience in the US, euro area and UK shows that this increase in demand is occurring at a time of slowing labor supply growth and declining labor participation rates, with companies having to pay less per hour worked. There is an urgent need to optimize productivity by maximizing output.
In the UK, the situation is complex. Labor demand is weak, compounded by very low labor supply growth as participation rates continue to decline. Nevertheless, unemployment remains low, reflecting an economy with little growth and a labor market constrained by limited supply rather than strong demand. The employment rate is currently two percentage points below pre-pandemic levels, highlighting the continuing challenges.
Fibre2Fashion News Desk (DP)
