Published April 18, 2013
| 24/7 Wall St.
The U.S. unemployment rate continues to tick down, hitting a more than four-year low of just 7.6% in March. In much of Europe, however, the situation is very different. If the latest developments in Cyprus are any indication, the economic and employment woes of Europe are nowhere near over.
According to the latest figures released by Eurostat, the statistical agency that measures the European nations, the United States and Japan, the unemployment rates in 10 countries were roughly four percentage points higher than in the United States. These include the poster children for the European debt crisis, Spain and Greece. According to the most recent data, Spain’s unemployment rate is 26.3%, while Greece’s is even higher, at 26.4%.
While unemployment in the U.S. rose sharply during the recession, from 5.8% in 2008 to 9.3% in 2009, the effects of the European debt crisis were even more rapid and severe — especially in some of the nations where unemployment remains high. In Lithuania, the unemployment rate increased from 5.3% in 2008 to 13.6% in 2009. Ireland had the lowest unemployment rate of the 31 countries reviewed in 2005. Now, it has one of the highest rates in Europe.
24/7 Wall St. reviewed the countries measured by Eurostat because they are primarily developed nations. While many other countries have higher unemployment rates than the countries on this list, the residents of developed nations rely on services from their governments that do not exist in developing nations. Unlike most developing countries, government assistance becomes a costly burden when unemployment rises in developed countries.
Sustained unemployment rates in excess of 10% can be very costly for governments. In 2009, Ireland spent 3.5% of its gross domestic product on unemployment benefits alone, while the United States spent just 0.9% on similar benefits. Making matters worse, as Mark Keese, Organisation for Economic Co-operation and Development’s (OECD) head of employment analysis and policy division explained, “In some countries like Portugal, Spain, and Ireland, social protection is quite well developed and generous. Of course, any increase in unemployment gets translated into large increases in public expenditures, and puts upward pressure on debt.”
Debt as a percent of gross domestic product (GDP) in the countries with the worst unemployment are among the highest in the developed world. In 2012, government debt as a percentage of GDP exceeded 110% in four of the 10 countries with the highest unemployment rates, and six were among the top 20% for debts as a percentage of their GDP out the of the 174 countries measured by the International Monetary Fund (IMF) that year.
However, not all the countries on this list have high debt as a percentage of GDP — evidence of how different levels of government support for the unemployed affect costs. Keese noted that in high unemployment countries like Latvia and Bulgaria, where debt is not as high, those social protection systems are less generous, and so higher unemployment is less likely to translate into debt and poor sovereign debt ratings.
There is increasing pressure on these high unemployment countries by their citizens, international lenders and credit ratings agencies to improve their severe unemployment situation. According to Keese, countries like Spain, Portugal and Greece have enacted reforms of employment protection legislation and wage bargaining reforms, “In an effort to show that they are trying to tackle the structural problems in their economies.”
To determine the countries with the highest unemployment rate, 24/7 Wall St. examined the most recent unemployment rates published by Eurostat, the statistics office of the European Union which tracks European nations, the United States and Japan. Most of these data were for February 2013, and none were from earlier than December 2012. 24/7 Wall St. also reviewed national-level GDP and debt statistics. Most of these data were collected by the IMF through 2011 or 2012, with figures for some nations estimated by the fund. To reflect real changes in output, we reviewed GDP growth figures based on constant prices. We reviewed GDP per capita figures based on purchasing-power-parity to reflect real differences in the spending ability of residents of each nation. Additional figures for government spending on specific social services are from the OECD. Credit ratings were provided by Moody’s Investors Service and are as of April 4, 2013.
These are the countries with the highest unemployment rates.
> Unemployment rate: 11.6%
> Credit rating (outlook): Baa2 (negative)
> GDP per capita: $30,136.38
> GDP growth: -2.37%
> Debt pct. of GDP: 126.98%
Italy’s unemployment rate rose in the past year from an already bad 10.1% in February 2012 to an even worse 11.6% in February 2013. For Italy’s youngest workers, those under 25, the job market is even worse. Nearly 38% of them were unemployed in February. In 2012, Italy’s GDP fell by nearly 2.4%. The IMF expects this contraction to continue in 2013, and estimates its GDP will drop an additional 1.5% this year. Italy’s general government debt totaled roughly 127% of national GDP in 2012, one of the highest among countries surveyed. Also, the country’s general election in February remain in a deadlock. Despite these, IMF economist Jorg Decressin recently noted that Italy was making progress in repairing its economy.
> Unemployment rate: 12.5%
> Credit rating (outlook): Baa2 (stable)
> GDP per capita: $14,311.58
> GDP growth: 0.78%
> Debt pct. of GDP: 18.50%
Many of the countries with high unemployment also have very high debt per capita. Bulgaria is an exception. The country’s debt is among the lowest in the world, at just 18.5% of GDP in 2012, compared to the United States’ 106.5% of GDP. In 2009, the eastern European nation had the 10th-lowest unemployment rate of the countries measured at just 6.8%. By 2012, unemployment had risen to 12.3%, the ninth-highest rate. Many of the economies with high unemployment rates are poorer than much of Europe, and none more so than Bulgaria. Bulgaria’s GDP per capita in 2012 was just $14,312, which is lower than all but one of the 31 countries measured by Eurostat.
> Unemployment rate: 13.1%
> Credit rating (outlook): Baa1 (stable)
> GDP per capita: $21,615.34
> GDP growth: 3.62%
> Debt pct. of GDP: 39.59%
In 2010, Lithuania’s average unemployment rate was 18%. While it fell to an average of 13.3% in 2012 and to 13.1% in February 2013, Lithuania’s unemployment rate remains among the highest among countries measured by Eurostat. Although the nation’s GDP fell by a whopping 14.9% in 2009, the second largest contraction of any nation in the world that year, the Lithuanian economy steadily has recovered from the global economic recession. GDP has risen in every following year, and the IMF predicts the nation’s gross debt — which nearly doubled between 2008 and 2009 — will remain nearly flat relative to GDP in the next few years. The IMF also noted the nation cut its budget deficit from more than 9% of GDP in 2009 to just an estimated 3% in 2012.
> Unemployment rate: 14.0%
> Credit rating (outlook): Caa3 (negative)
> GDP per capita: $27,085.98
> GDP growth: -2.43%
> Debt pct. of GDP: 86.21%
The unemployment rate in Cyprus has climbed steadily in recent months, and at 14% in February was nearly four percentage points above its 10.2% unemployment rate a year before. Last year, the country’s GDP declined by 2.4%, one of the largest declines in the world in 2012. Central to the nation’s problems were its banks, which lent heavily to Greece. In order to keep its economy afloat after the banking sector collapsed, Cyprus received a bailout package from the IMF and eurozone’s bailout fund. In January, Moody’s downgraded the country’s credit rating to Caa3, among the worst ratings, due to the problems the country’s banks are facing.
> Unemployment rate: 14.2%
> Credit rating (outlook): Ba1 (negative)
> GDP per capita: $41,920.73
> GDP growth: 0.94%
> Debt pct. of GDP: 117.12%
For the past several years, Ireland has had extremely high unemployment. According to Eurostat, in 2010 the average unemployment rate was 13.9%. In 2011 and 2012, unemployment was even worse, at an average rate of 14.7% in both years. In recent years, the country has taken on large amounts of debt. Between 2009 and 2010 alone, the government’s debt rose from less than 65% of GDP to more than 92% of GDP, according to the IMF. Ireland’s 2010 bailout is likely a major reason for this rise. The bailout, provided by the IMF and European Union in late 2010, was used help the country cover its budget deficit. In 2010, government spending totaled nearly 65% of GDP, fourth most in the world. Last year, government spending totaled a more modest 41.6% of GDP.