Harry Dexter White (left) and John Maynard Keynes in Georgia, U.S., March 8, 1946. Unknown photographer/Wikimedia Commons. Public Domain.The EU is currently experiencing a modest economic recovery: real GDP growth is expected to rise by 1.95% in 2016, and in 2015 the unemployment rate slightly decreased to 9.3% in the EU and to 10.8% in the Eurozone. However, what threatens the labour market and growth in Europe is the nature of unemployment. In the EU, half of the unemployed (23 million people) have not been working for more than a year, one-fifth are young, and nearly 40% of the latter are in both conditions, i.e. young and unemployed for more than one year. All those people are more likely to become discouraged and leave the labour market with an erosion of skills, a decline of capacity and a lower, if any, probability to find a new job when the labour market will begin to recover.
We are also facing, at the global level, a problem of what Keynes called “technological unemployment,” that is unemployment “due to our discovery of means of economising the use of labour outrunning the pace at which we can find new uses for labour.” According to a recent World Bank report, middle-skilled routine labour with well-defined procedures, such as assembling or accounting, can be completely automated by machinery. People in these jobs are bound to become technologically unemployed.
Neoclassical and Keynesian economics on potential output
The European Parliament discusses economic growth, high debt and unemployment levels. Martin Schulz/Flickr/© European Union 2015 - European Parliament. Some rights reserved.The problem of structural unemployment can be seen through the concept of “potential output,” an indicator estimated by economic practitioners to measure the level of output in the long run. Potential output is considered a desirable objective, towards which economies should tend. If actual output is lower than the potential, a negative output gap exists, meaning that the production is below what the level of capital equipment and existing technology would permit. The 2015 IMF World Economic Outlook reported that the growth trend of the potential output has started to decline for both advanced countries (since 2000) and emerging ones (after 2009). In 2015 the Eurozone suffered an average negative output gap of 2%, with Greece at -7.4%, Spain -5%, Italy -4.5%. Germany is the only country that has closed its gap. The resulting picture is not encouraging, as in addition to the potential growth slowing down globally, those Eurozone countries worst hit by the crisis are failing to close their output gap and get back on a positive path. In sum, as Larry Summers put it, it seems that we are currently in a situation of “secular stagnation.”
