The Background of the Unemployment in the Euro Area

Abstract

Unemployment has been a macroeconomic problem of every economy for decades, requiring a detailed analysis. The paper focuses on the sources of unemployment in the Euro Area during 2000-2021. The article aims to identify the essential cause as well as sources of unemployment during the two decades of the 21st century and whether it should be sought in the financial crisis during 2008-2014, in the short period of recovery until 2018, or during the COVID-19 period from 2019 to 2021. The analysis of unemployment in the countries of the Eurozone is conducted using the fundamental macroeconomic indicators of balance in the economy: gross domestic product (GDP), inflation, and unemployment. The methodological concept is based on usual macroeconomic relationships, and panel regression model estimates are presented in the STATA software package. The analysis results indicate the nonlinearity of the Phillips curve and Okun’s law during the analysed period. Deviations from theoretical concepts are significantly expressed in some sub-periods. External effects distort market mechanisms, causing large and significant differences between individual countries of the Eurozone. However, common to all sub-periods is a deflationary output gap. The gap between the current and the optimal output deepened the unemployment problems. The long-term deflationary output gap hurt the inflation rate, showing the gap between those economic theory developers and policy makers. These results can be the basis for further analysis by including more macroeconomic determinants of the economy.

Keywords

• macroeconomic balance, unemployment, inflation, output gap, Eurozone, Phillips curve, Okun’s law