Eurozone Needs Further Labor Market Reforms, Says IMF

        By Jon Sindreu
        The eurozone needs to cut protection for permanent workers and keep minimum wages on check, the International Monetary Fund said Monday.
        The Washington-based organization released a staff discussion note arguing for further labor market reforms in core European economies such as France, Italy and Spain.
        "Growth alone will not solve the problem, especially where high youth unemployment predates the crisis," the IMF said.
        With the eurozone's gross domestic product expanding by a scant 0.6% compared with a year earlier in the third quarter, economic growth might not be an option anyway.
        Nonetheless, the research paper points out that the fall in GDP accounted for only half the rise in youth unemployment during the crisis: Countries such as Greece, Spain and Portugal--but also Italy and France--already had a problem with the amount of young jobless before 2008.
        According to the IMF, policymakers should close the gulf between temporary workers--a large share of which are under 25--and permanent workers by easing protection on the latter.
        It also adds that "it might be helpful to ensure that minimum wages are set taking into account of other wages in a country," or young workers are likely to be "priced out" of the labor market.
        On top of this, the IMF argues for more vocational training schemes, as well as cost-effective active policies to help the unemployed find jobs.
        In the eurozone, the youth unemployment rate--the share of jobless over those employed or looking for jobs amongst people between 15 and 24 years old--climbed to 9.8% in 2013 from 6.7% in 2007, official data shows. More worrying for policymakers, the IMF says, 40% of them have been jobless for longer than a year.
        It's not like the international organization only focuses on structural reforms, as the other two "arrows" in the agenda--reminiscent of Japanese Prime Minister Shinzo Abe's economic policies--are also present: Fiscal and monetary policy.
        Besides "an increase in public investment in countries that can afford it," the research note said, "support for private investment through accommodative monetary policy" is needed.
        For the European Central Bank, which is debating whether to engage in full-fledged purchases of sovereign bonds early next year, every nudge in that direction is welcome news for the doves in the ECB--starting with President Mario Draghi.
        Write to Jon Sindreu at jon.sindreu@wsj.com
        (END) Dow Jones Newswires

        December 08, 2014 09:12 ET (14:12 GMT)

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