(Finance) – Labor markets remain tense in the United States, the United Kingdom andEurozonebut the very weak performance of labor productivity in the single currency area leaves the labor market conditions more exposed to unexpected negative shocks on demand aggregated. Fitch Ratings states this in a report on the topic.
Eurozone companies have accumulated manpower and they could be quick to reduce headcount if aggregate demand disappoints, and with labor supply growing strongly this could increase the risk of rising unemployment rates.
In the United States the rapid recovery of aggregate demand was the engine of the expansion in labor demand. But this has been accompanied by limited growth in labor supply and declining participation rates, forcing companies to squeeze more output out of every working hour.
In the Eurozone, by contrast, companies have hired many extra workers despite alimited expansion of aggregate demand. Productivity has barely grown since the fourth quarter of 2019 and is well below pre-Covid-19 pandemic trends. It appears that companies have been hoarding labor, employing more people while reducing average hours worked per employee, in the hope that aggregate demand will improve. Strong employment has kept Eurozone labor markets tight despite robust growth in labor supply and rising participation rates.
(Photo: Glenn Carstens-Peters on Unsplash)