The spectre of structural unemployment

- "The week has been dominated by discussions of European banking-sector stress tests and
the publication of the results on July 23. We now know that 91 banks will be in the spotlight, but we have little detail on the underlying test assumptions and, in particular, on the simulated shocks to sovereign bond portfolios. Today’s ECB press conference provided little further
information, despite a battery of stress-testrelated questions. On other matters, the ECB
appears to believe that money market tensions have, if anything, eased, and is not particularly concerned (rightly so, in our view) about the market-led liquidity withdrawal witnessed in July, or the rate implications thereof. The ECB also expressed a neutral view on the strength of
the recovery."
- "For the recovery to become sustainable, labour markets need to stabilise so that consumer confidence can be restored. This week we discuss the cyclical versus structural aspects of the unemployment picture. While it looks as if employment contraction has stabilised, the divergence in unemployment rates across European economies is now at historical highs. In some countries, short-term working-time arrangements have shifted the labour market
adjustment away from job cuts towards more flexible hours worked. Heterogeneous
macroeconomic exposures to harder-hit sectors such as construction and industry have also played a role. We find that there is a non-negligible risk that hard-hit countries such as Spain and Ireland are heading towards an increase in structural—as opposed to merely cyclical—unemployment. However, the Euro-zone as a whole seems to be shielded from an acute and persistent skills mismatch."
GoldmanSachs European Weekly Analyst 20100708

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