Unemployment Crisis Hits Economic Wunderkind Austria

In Eurostat’s “harmonized” unemployment rates for EU Member States, Austria is depicted as the glory land for job seekers: 4.8% unemployment in October, in first place, ahead of Germany (5.2%) and a universe apart from crisis countries Spain (26.7%) and Greece (27.3%). While this “harmonized” unemployment rate has been creeping up from 4.3% in October in 2012 and 4.1% in October 2011, it’s baloney. Austria is facing a growing crisis.

In July, unemployment jumped by 12.6% from a year earlier to 256,494 registered unemployed, according to the Austrian government’s employment office, the Labor Market Service (AMS). Another 63,843 of the unemployed had been assigned to training programs, up 12.0% from a year ago. In total: 320,337.

In September unemployment jumped by 14.1% from a year earlier, to 261,259 registered unemployed. Worst hit sectors: construction where unemployment shot up 20.6%, trade (up 16.3%), healthcare and social services (up 16.2%), manufacturing (up 15.2%), and tourism (up 14.7%).

“The reason for the rise in unemployment is the international economic downturn,” said at the time Johannes Kopf, head of the AMS. “The low level of economic growth of around 0.3% is not enough to reduce unemployment, given the increasing labor supply.”

In October, unemployment jumped by 12.2% from a year earlier, to 280,336 registered unemployed. Over the 12-month period, the unemployment rate rose by 0.7 percentage points to 7.4%, a far cry from the ludicrous “harmonized” 4.8% that Eurostat dished up. And even that 7.4% is considered a lowball number due to various statistical adjustments and a system of early retirement that removes people from the labor force and therefore deletes them from the unemployment numbers. Job openings dropped by 10.4%. Hardest hit people: those with the least qualifications: 46% of the job seekers had no more than the legal minimum education.

The rapid deterioration continued. By November 20, when Profil Online interviewed Kopf at his office, there were 14,200 more unemployed than at the end of October, 294,500, up 12.3% from the same day last year. The number of those assigned to training programs jumped 10.4% to 82,010. In total 376,510. They get to fight over 28,000 job openings – 13 job seekers per job opening. Good luck!

By the end of January, the number of jobless, including those in training, will likely hit 450,000, Kopf told Profil. And by early 2015, there’d be about half a million. 2014, he said, would be the year “with the highest ever measured unemployment.”

Austria has sailed through the Eurozone debt crisis without taking on water. But now that a “Eurozone recovery” has been proclaimed by Brussels, illusory as that may be, and as Eurocrats are patting themselves and each other on the back, Austria is beginning to list.

In May, during the campaign for the elections in September, the problems were already so apparent that Vice Chancellor Michael Spindelegger, leader of the ÖVP, promised to create 420,000 new jobs over the next five years. In July, Parliament passed a modest stimulus package. Nervous politicians assured the public that rising unemployment would be just a temporary blip; it would be over and done with in the fall of 2014.

But Austria’s economy is dependent on exports, particularly to Germany. Whatever politicians promised during the campaign, foreign demand remains devilishly hard to stimulate with domestic means. And as the government is under pressure to cut outlays, the standard solution – conjuring up major construction projects – might not work this time. Instead, discussions are now focused on which construction projects to cut.

Austrians have become gloomy about jobs: in a recent survey, 35% feared that they or some of their family members could lose their jobs in 2014. This fear was particularly widespread among workers with low levels of education. And only 57% of the respondents assumed that they and their relatives had a secure job – in a country where job security is baked into inflexible labor laws.

Comparisons to 2009 are cropping up.

“At the time, there was a serious slump in the shortest time,” said Helmut Mahringer, labor market expert at the Austrian Institute of Economic Research (Wifo). “You could achieve quite a bit with measures such as accelerated Kurzarbeit (shortened work hours).” But for about two years, the unemployment numbers have been rising steadily, so short-term stop-gap measures don’t do much good. And reducing work hours? That might not work either, Mahringer said. “Many employees are already working only part-time….”

There have been major bankruptcies, including Alpine Bau, second largest construction firm in Austria, and the largest bankruptcy in Austrian history. According to its restructuring plan, it would let go about a third of its 6,500 employees.

Drugstore chain dayli (an inversion of the English daily), which had been bought by a private equity firm in 2012 to be restructured, descended into a chaotic and messy bankruptcy this year. All of its remaining 2,200 employees – there’d been layoffs before – are expected to lose their jobs. Electronics retailer Niedermeyer, with 98 stores in Austria and 580 employees, also went kaput. As part of its restructuring plan, it will close 45 stores and let go about half of its employees.

Then there were the run-of-the-mill layoffs. When Lenzing Gruppe, a globalized producer of industrially made cellulose fibers, announced its earnings in November – revenues so far this year down 7.7% – it lowered its guidance for the 4th quarter due to a “continued difficult market situation.” And it “proactively decided on a sweeping, massive cost optimization program.” Beautiful corporate speak for axing 15% of its workers in Austria.

For years, the solution has been to send young people into healthcare and social services where job opportunities seemed unlimited for all times to come. Alas, in October, unemployment in the sector jumped by 16.4%, mostly at the lower end of the pay scale, just behind the debacle in construction where unemployment jumped 18%, as Alpine was falling into bankruptcy.

Workers with low educational levels have gotten demolished. From 1990 to 2012, their unemployment rate doubled to 20%. Competition for these jobs has been enormous after Austria opened its labor market to Eastern European countries. Consequently, since the mid-1990s, those at the lowest levels of the income pyramid (up to €1,100 per month) saw inflation-adjusted wages plunge by over 20%.

The economy is still creating jobs – there were a record of 3.508 million “not-self-employed” people in October. But job creation has lagged population growth. And two-thirds of the jobs created were low-wage part-time jobs.

“There is certainly no government program with which you could reduce unemployment immediately,” a disillusioned Kopf told Profil. And the 420,000 new jobs that Spindelegger promised in May? He hasn’t started performing his miracles just yet. But to whatever extent these new jobs might materialize, most of them will be low-wage part-time jobs.

And so the “Eurozone recovery” takes on darker nuances, at the iron-clad core of the Eurozone, in one of the few countries that had seemed immune to the debt crisis.

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