15% of Eurozone Workers Are Unemployed or Underemployed, Says ECB

Around 15% of eurozone workers are unemployed or underemployed, according to the European Central Bank, suggesting wages and inflation in the 19-country bloc are unlikely to pick up for some time.

The new estimate comes amid a tense debate over how quickly the ECB should start reducing its massive monetary stimulus program. Recent data indicate the eurozone economy grew faster than the U.S. in the first quarter. Top officials in Germany, Europe's biggest economy, have been calling for months for Frankfurt to start unwinding aggressive stimulus policies that include EUR60 billion ($65 billion)-a-month of bond purchases and subzero interest rates.

But in a study published Wednesday, the ECB warned that the region's labor market was far from healed.

While the bloc's unemployment rate has fallen sharply--to an eight-year low of 9.5% in March--broader measures of unemployment have been slower to decline, the ECB said. These measures of labor-market "slack" take into account workers who are no longer seeking a job but would like one and those working part time who would like more hours.

The ECB said that by these measures, around 18% of eurozone workers were unemployed or underemployed. Subtracting those workers who had been out of the labor force for a very long time, and allowing for time spent at work by part-time workers, it arrived at an estimate of 15% slack in the labor force.

"Labor markets in most euro area countries--with the notable exception of Germany--appear to still be subject to a considerable degree of underutilization," the ECB said. "This is likely to continue to contain wage dynamics."

The central bank has been watching closely for a pick-up in wages, because they form a significant part of overall inflation. ECB President Mario Draghi said in March that wage growth was the "linchpin of a self-sustained increase in inflation."

The bloc's inflation rate has surged in recent months, reaching 1.9% in April, within the ECB's target range of just below 2%. However core inflation--which excludes volatile food and energy prices--remains weak, suggesting inflation could fall back again.

Mr. Draghi and top ECB officials have pushed back against German demands for a policy reversal, arguing that a large dose of stimulus is still needed if inflation is to remain on track. Mr. Draghi will address Dutch lawmakers later Wednesday to discuss the ECB's policies, which have also proven controversial in the Netherlands.

In its report, the ECB said broader measures of unemployment had continued to increase in France and Italy and remained above pre-crisis levels in countries like Spain.

Other major central banks, including the Federal Reserve, also look at broader measures of "slack" when assessing the economy. In the U.S., the official unemployment rate has fallen to just 4.4%, but the U-6 unemployment rate--which includes discouraged workers and part-time workers who want more hours--is still at 8.6%. That is down from a peak of around 17% in 2010, but still higher than before the financial crisis.

Write to Tom Fairless at tom.fairless@wsj.com

(END) Dow Jones Newswires

May 10, 2017 04:50 ET (08:50 GMT)