Vicious cycle of austerity and unemployment

Updated 05 June 2013
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Vicious cycle of austerity and unemployment

Weak growth and rising unemployment in the euro zone is prompting a change in policy direction away from budget austerity, according to QNB Group. The euro zone economy has now been in recession for the last six quarters, contracting by 1.5 percent in real terms over this period. The contracting economy is providing fewer opportunities for job creation and pushing up unemployment, which reached 12.1 percent of the labour force in March 2013. Amongst under-25s, joblessness is even higher at 24 percent. Both measures of unemployment are now the highest on record.
A primary policy response to the 2008 financial crisis and the European sovereign debt crisis (which reached peak intensity in summer 2012) was to implement budget austerity measures across the euro zone. This involved a sharp drop in public expenditure growth, which fell from an annual average of 4.5 percent in 2007-09 to 1.2 percent in 2010-12. This meant that only 170 billion euros was added to euro zone budgets in 2010-12 compared with 570 billion euros in 2007-09, an overall slowdown of 400 billion euros.
The main areas targeted by governments to slow expenditure growth have been social benefits, public sector jobs and wages, and capital investment. Cutting government jobs and investment has a direct impact on growth and unemployment. Meanwhile, reducing social benefits at a time of hardship is leading to widespread dissatisfaction and protests. The high levels of sovereign debt in Europe have discouraged the counter-cyclical spending that government usually uses to rebalance their economies during recessions. Debt interest and capital repayments, which are not supportive of growth, were the only areas with higher growth in 2010-12 than in 2007-09.
Therefore, euro zone countries policy response has done little to tackle the unprecedented level of unemployment and weak growth, according to QNB Group. Officials increasingly appear to be considering a policy reversal. The target dates for reducing budget deficits below certain thresholds have already been pushed back in France, Spain and the Netherlands. In April, the president of the European Commission, José Barroso, said that Europe might have reached the politically acceptable limits of austerity, although he said he still believed cuts in budget deficits were needed. His comments were more in line with the view of the IMF, which has warned euro zone policy makers against adhering too strictly to budget deficit targets as this risks deepening Europe’s recession.
Budget deficits have fallen from 6.4 percent of GDP in 2009 to 3.7 percent in 2012. Government debt in the Eurozone has now risen from 80 percent of GDP in 2009 to 91 percent in 2012. Although debt levels are rising, there may still be room for manoeuvre. Increased debt-funded spending in growth-supportive areas, such as investment or intermediate consumption could potentially increase revenue and trigger further investment, helping to reduce debt in the longer term.

Heavily-indebted countries have, in the past, increased spending and exhibited strong growth as a means to repaying debt. The US and the UK in the 1950s both had debt in excess of 100 percent but high spending drove strong growth and enabled them to reduce debt to sustainable levels.
Reduced austerity in some of the larger countries could also help tackle unemployment across the region, especially if coupled with reforms to increase labour force mobility around the EU.
However, the overall debt levels in the Eurozone cloud a more nuanced picture among individual countries as both unemployment and debt vary considerably. Unemployment in non-core euro zone countries (Italy, Spain, Greece, Ireland, Portugal Cyprus, Estonia, Slovakia and Slovenia) is 17.7 percent while unemployment in core countries (Germany, France, Austria, Belgium, Finland, Luxembourg, Malta and Netherlands) is 7.6 percent.
Greece, Italy, Portugal and Ireland, each have debt levels of around 120 percent of GDP or greater, leaving them with little room to ease back on austerity. Greece is in the worst position with unemployment at 27 percent and 66 percent for under-25s while debt is 157 percent of GDP (although it is falling). Conversely, Spain, the other country with particularly chronic unemployment (27 percent and 56 percent among under-25s), may have room to borrow more to provide additional government support to the economy.
In addition to more growth focused policies, QNB Group argues that structural labour market reforms are still required. Investment in programs to get people back to work, adjustments in labor costs and greater labor market flexibility should all help. These policies are most needed in countries with high unemployment, such as Greece and Spain.


US regulators target Facebook on discriminatory housing ads

Updated 18 August 2018
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US regulators target Facebook on discriminatory housing ads

  • Facebook says company does not allow discrimination
  • US complaint alleges violation of fair housing laws

NEW YORK: Federal regulators are alleging that Facebook’s advertising tools allow landlords and real estate brokers to engage in housing discrimination.

The US Department of Housing and Urban Development said in an administrative complaint this week that Facebook violated the Fair Housing Act because its targeting systems allow advertisers to exclude certain audiences, such as families with young children or disabled people, from seeing housing ads.

“When Facebook uses the vast amount of personal data it collects to help advertisers to discriminate, it’s the same as slamming the door in someone’s face,” HUD Assistant Secretary Anna María Farias said in a statement Friday.

Service providers such as Facebook typically aren’t liable for the actions of their users. In a separate, civil lawsuit filed by housing advocates, the Justice Department said Facebook doesn’t fall under that category because it mines user data, some of which users have to provide, and customizes ads for specific audiences. The government said that counts as being a content creator, rather than merely a transmitter of user content.

Facebook said the company doesn’t allow discrimination and has strengthened its systems over the past year to prevent misuse. The company added that it is working directly with HUD to address its concerns. Facebook has an opportunity to respond to the HUD complaint before the agency determines whether to file formal charges.

The HUD action is separate from the federal lawsuit, filed in March in New York by the National Fair Housing Alliance and other organizations. The lawsuit says investigations by fair housing supporters in New York, Washington, D.C., Miami and San Antonio, Texas, show that Facebook continues to let advertisers discriminate even though civil rights and housing groups have notified the company since 2016 that it is violating the federal Fair Housing Act.

It seeks unspecified damages and a court order to end discrimination.

The Justice Department’s position came in a filing in that case. Facebook said it plans to respond in court.