Euro area: why the wave of unemployement is contained so far

T he contraction of the euro area economy by 6.8% in 2020 should have led to a surge in the number of unemployed. That surge, however, never materialized and the unemployment rate is now standing at 8.3% after 8.6% six months ago. But this is not to say that the recession did not leave deep traces in the labour market , as reflected in a big dec line in employment and a rise in inactivate people who stopped looking for a job . The very muted reaction of the unemployment rate can be explained by this rise in in activity, with workers waiting for a better economic perspective before starting again to look for a job . Another important factor are government support schemes . W ith governments being willing to take over part of the wage bill, the labour market has been “frozen”. The aggregate figures, however, are “ hiding ” strong sectoral differences . These differences reflect the different degrees to which sectors have been affected by lockdown measures. We don’t expect the picture to change much this year as governments will continue to financially support companies (through wages, loans, subsidies). We forecast unemployment to reach 9% at the end of 2021.