Why is unemployment so high in Luxembourg?

By Stephen Evans

Nearly one-in-ten of the working population do not have a permanent job. The official unemployment rate is 6.9 percent but if you add in those on government make-work schemes the figure was 9.0 percent in May 2015.

Yet this is despite the economy doing pretty well, with the number of people working here continuing to grow at more than 2 percent per year. So how come more than 23,000 of us can’t find work?

Half of the net 9,340 jobs created in the year to May this year were taken by cross-border commuters, says the national statistics office Statec. This is because either the local unemployed don’t have the necessary skills, or their salary expectations are higher than firms are willing to pay.

As wages are high here, employers need to keep costs down if the firm is to survive, hence the move to automate and outsource. The low skilled are generally the ones to suffer redundancy. Also, being able to claim up to 85 percent of previous salary in unemployment benefit acts as a disincentive to rush back to work.

Unemployment has jumped since the crisis. It was around 4 percent in the middle of 2008 and is now around 7 percent. It has dropped slightly recently but is not predicted to fall in the coming years.

Also, more people are getting stuck. Pre-crisis, around 3,000 had been without work for more than a year, now the figure is 7,990, about half of the total jobless figure. It is tough for a middle-aged ex-manufacturing worker to retrain and join a growing sector.

The public sector has helped in the past, but the rate of job creation is falling here too as public finances become tight. Nearly 47,000 people were employed by the state in 2014, around 13 percent of all employment. This includes national and local civil servants and the likes of teachers plus, for example, staff at the Philharmonie and la Coque.

It excludes semi-state firms like the Caisse d’Epargne, Luxair and Enovos. The total employed by the state has doubled in 20 years, in line with the rest of the economy, but the rate of growth began to slow in 2013.

The financial sector has continued to create jobs despite restructuring in the banking sector. Statec points out that the positive upswing is largely due to the “Soparfi” financial holding companies. These firms invest in and manage local and international companies, and so perform a vital function simplifying cross-border trade and investment.

This includes making sure firms only pay as much tax as they are legal obliged to do, something that has made their activity somewhat controversial of late. While banking employment has fallen 0.3 percent per year since 2008 (90 people per year) Soparfis have grown by 16 percent per year (+315 people per year).

A lot of new jobs have been created in information and communications technology, another high tech, high skill area. Much of this is supporting existing industry, but also includes new areas like the recent boom in data centres that allow internet download and streaming services.

ICT services firms’ employment is up around two-thirds to 16,760 at the end of 2014, around 4.6 percent of total employment.

The government has also targeted logistics as sector that could create skilled and lower skilled jobs. Employment in this sector was up about 10 percent over the last ten years to 10 percent, with two-thirds of this truck and train-based logistics.