FRANKFURT (MNI) – The inability to reduce private sector wages
remains a key stumbling block to restoring competitiveness in peripheral
Eurozone economies, according to a new research paper from the European
System of Central Banks.

The paper also warns that growing structural unemployment and long
periods of joblessness among young and low-skill workers could have
long-term consequences for growth if not addressed. The paper was
released by the Task Force of the Monetary Policy Committee of the ESCB,
which is made up of all 27 central banks in the European Union.

“Major labour market reforms in euro area countries are essential
to foster job creation, bring down unemployment and restore
competitiveness, while also lowering the risks of a permanent decrease
in potential output growth,” the paper said.

It noted that Greece, Ireland, Portugal, Spain and Italy have all
taken “important measures” to reform their labor markets, opening up
wage bargaining and lowering “excessive employment protection.”

The reform efforts by these countries mark “appropriate first steps
to improve labour market and competitiveness performance in these
countries and in the euro area as a whole,” and should also be boosted
by more product-market reforms.

Labor markets that are flexible and function well are especially
important in monetary union, providing “an economic environment that
greatly facilitates the price stability-oriented monetary policy of the
ECB,” the paper said.

The task force said wage adjustments have been “relatively limited”
despite the stiff increases in unemployment over the crisis. Public
sector wages have come down somewhat more than in the private sector, it
said.

“Downward wage rigidities are an impediment to restoring
competitiveness (and thus employment), particularly in those euro area
countries that had accumulated external imbalances before the crisis,”
the paper said.

“In the presence of high unemployment, a flexible response of wages
to labour market conditions should be a key priority, so as to
facilitate the necessary sectoral reallocation underpinning employment
creation and reductions in unemployment.”

Eurozone unemployment accelerated in September after a slowdown
over the previous three months, lifting the jobless rate to a fresh high
of 11.6% from an upwardly revised 11.5% in August, Eurostat reported
earlier Wednesday.

Nearly one in four people under 25 are without work across the
Eurozone, with youth unemployment rates as high as 50% in some of the
harder-hit economies. The study also noted that long-term unemployment
has risen to about 46% of the total, up 12 percentage points since
before the crisis, and is especially high among low-skilled workers.

The study called for more training programs and other policies to
tackle a growing skills mismatch in the Eurozone, aimed at getting the
young and low-skilled back to work. This would help “limit the decrease
in potential output growth associated with higher structural
unemployment.”

— Frankfurt bureau: +49 69 720 142; email: ccermak@mni-news.com

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