Recomendaciones

(%)(f) 0.24 0.35 0.46* 0.36 0.49* Long-term unemployment (%)(g) 0.13 0.40* 0.43* 0.37 0.53* Youth unemployment (%)(h) 0.34 0.39* 0.48* 0.42* 0.55*

Important as the overall level is, changes in unemployment are also likely to create changes in the levels of financial difficulty, because sudden loss of employment creates income shocks that may not be easily compensated for by reducing

consumption.87 _{Levels of unemployment across the European Union as a whole}

remained relatively steady during the early 2000s and from mid-2005 there was a period of steadily declining unemployment (see figure above) This was reversed with the onset of the financial crisis, with a sharp rise from 6.7% in the first quarter of 2008 to 10.4% in July 2012.

Rises in unemployment was not distributed evenly across Member States. Eight Member States have seen an increase of around seven percentage points or more since 2008: Greece (15.4% increase), Spain (13.8%), Ireland (8.6% – but 9.3% since 2007); Latvia (7.9%); Lithuania (7.2% – but 9.4% since 2007); Bulgaria (6.8%) and Estonia (4.6% – but 7.0% by 2011, since when it has fallen). In contrast, other Member States have seen relatively little increase at all over this period and in Belgium, Germany and Austria unemployment rates fell between 2007 and 2011.

Table 26.

Correlations of

unemployment rate,

arrears and ability to

make ends meet

(2011)

Sources: Civic Consulting based on Eurostat, EU-SILC data (see footnote). Notes: *Denotes a statistically significant correlation (p<.05); Analysis for Ireland uses up to 2010 data.

Arrears on hire purchase or other loans, change (%) Arrears on utilities, change (%) Arrears on mortgage or rent, change (%) Total arrears, change (%) Inability to make ends meet, change (%) Unemployment change (%) 0.21 0.31 0.32 0.33 0.42* Long-term unemployment change (%) 0.19 0.34 0.38* 0.36 0.34 Youth unemployment change (%) 0.11 0.22 0.22 0.24 0.28

In a second step, correlational analysis of the change in unemployment from 2007- 2011 and the change in frequency of arrears from 2007-2011 found that the association of unemployment and arrears was positive for total arrears (r=.33) but especially for “inability to make ends meet” (r=.43). This implies that increases in unemployment are associated with increases in arrears and other indicators of financial difficulty. The table above displays all correlation coefficients for changes in unemployment and arrears over the period.88

Long-term unemployment also has important implications for levels of over- indebtedness and has been rising. Across the European Union 4.1% of the labour force had been out of work for more than 12 months. Countries where long-term unemployment is most prevalent include Greece, Ireland, Latvia, Lithuania, Slovakia and Spain.89 _{As can be seen in the table above, changes in long-term unemployment}

tend to be more strongly associated with arrears than either overall unemployment, or youth unemployment.

The other trend of note is the rise in youth unemployment (age 15-24), which historically has been about twice the EU average for all age groups. The problem of youth unemployment (in 2011) is at its worst in Spain, Greece, Portugal, Slovakia, Lithuania, Latvia, and Ireland, whether it is expressed as an absolute rate or the proportion of the total unemployed who are young people. Interestingly, youth unemployment in 2011 was more highly correlated with all measures of arrears and financial difficulty than either the general or long-term unemployment rates. This

88 _{EU-SILC data, (a) code: ilc_mdes06; (b) code: ilc_mdes07; (c) ilc_mdes08; (d) ilc_mdes05; (e) ilc_mdes09; (f) tsdec450; (f) code:}

tsdec450; (g) code: tsdsc330; (h) code: tsdec460.

89 _{See 'Unemployment statistics' presented by Eurostat ('Statistics explained') at the following website: http://epp.eurostat.}

ec.europa.eu/statistics_explained/index.php/Unemployment_statistics#Recent_developments_in_unemployment_at_a_Europe an_and_Member_State_level.

Table 27. Correl-

ation of percentage

change of

unemployment with

change in arrears

and ability to make

ends meet (2007-

2011)

Sources: Civic Consulting based on Eurostat, EU-SILC data (see footnote). Notes: *Denotes a statistically significant correlation (p<.05); Analysis for Ireland uses up to 2010 data.

may indicate that younger people are at greater risk of falling into financial difficulties because of unemployment, as they have less wealth, assets, or social security contributions built up over time than older people. However, changes in youth unemployment were not as strongly associated with these measures.

This is entirely consistent with previous economic literature. The links between unemployment and experiencing financial difficulty are well established90 _{and a}

review of the literature in the 2008 EMPL study found that not being in employment has been found to be associated with an increased likelihood of over-indebtedness in countries such as the UK, Belgium, and the former East Germany.

Supporting evidence was provided by studies such as an analysis of data from Banque de France in 2004, which showed that three in ten were over-indebted

through redundancy or unemployment.91 _{Similarly, unemployment was given as an}

explanation by a quarter (23%) of those in the former West Germany who were facing over-indebtedness, and 46% of those in the former East Germany.92

There was less consensus as to whether there was a significant relationship between unemployment and financial difficulties once other factors are taken into account, though research in the 1990s found that long-term unemployment was found to be predictive of over-indebtedness in the UK and Norway even when controlled for income.93 _{This was supported by research conducted for the 2008 EMPL study using}

regression analysis on EU SILC data, which found that households where the head of household was unemployed were most likely to report arrears when other factors were taken into account.94

More recently, comparing household work intensity with indebtedness of these households as measured by those households with outstanding debt of over 100% of disposable income, research on EU-SILC special module data95 _{found that in some}

Member States there was evidence of a tendency for the level of over-indebtedness

90 _{Davydoff, D., et al, Towards a Common Operational European Definition of Over-indebtedness, European Commission (DG EMPL), 2008.} 91 _{Gloukoviezoff, G., Surendettement des particuliers en France, Geneva: International Labour Office. 2006.}

92 _{Springeneer, H. Schuldenreport2005, Berlin (unpublished) cited in Hass, O.J., Over-indebtedness in Germany, Geneva: International}

Labour Office, 2005.

93 _{Berthoud and Kempson, Credit and debt: The PSI report. London Policy Studies Institute, 1992; Poppe, C., Risk Exposure to Payment}

Problems: Payment Problems Among Norwegians in the Nineties”. In Consumer Strategies in a Changing Financial Market. 60th

Anniversary Seminar, Oslo. 1999

(as defined in that study)96 _{to be larger in households with low work intensity, as}

illustrated in the examples from stakeholder interviews below. On the other hand, in Germany and the UK, and to a lesser degree in Ireland, the proportion was smaller in households with low work intensity than in those with higher levels. This may reflect a tendency for those with living in higher work intensity households to have more access to credit, simply because they are working.

Therefore, it is not surprising that the cause of households over-indebtedness most frequently indicated by stakeholders was unemployment, where nearly nine in ten (88%) cited it as the one of the most important macro-economic causes. While stakeholders in Member States particularly affected by the crisis cited this as among the most important causes of over-indebtedness (as in Greece, Spain and Ireland), unemployment was also seen as amongst the most important causes of levels of over-indebtedness by interviewees even in Member States less affected by the crisis such as Germany, Sweden and Belgium.

In interviews with over-indebted consumers in six Member States, which were conducted for this study in the summer months of 2012, over 70% of consumers interviewed counted at least one unemployed person in the household. Unemployment was the macro-economic factor mentioned most frequently as an important cause of the household's financial difficulties (53% of consumers interviewed). Households reported suffering from unemployment directly, but also indirectly (for example, as the result of reduced business revenue or because they were obliged to accept low paid jobs). Underemployment was also mentioned by some interviewees who were working fewer hours than they would wish. This is consistent with the comments of stakeholders on unemployment, shown in the box below.

96 _{In the context of the quoted study, over-indebtedness was considered to be signified by those households where outstanding debts}

Unemployment and over-indebtedness

"We would prefer not to speak about other lenders but for our customers unemployment of course can impact [over-indebtedness]. Any of the factors above could have an impact. You could easily tick every box, but we find that for our customer group unemployment level is the key. Social security in our markets is relatively weak so if you lose your job, you will get some benefits but your income is much reduced and the benefits do not last long. That is part of why we do not loan to unemployed people." (EU level stakeholder interview)

"Causality is always difficult to state. Each debt-related problem is caused by (voluntary) loan-taking that does not match later development of income. Unemployment and changes in household composition can induce income changes (or changes in subsistence levels) which result in over-indebtedness as defined above.97 _{The question is what is the cause. Loan taking is a voluntary decision. A}

cause can also be that you have an income shock (unemployment for example). If more people become unemployed the over-indebtedness level rises so in this sense - all other things remaining the same - unemployment level does have a causal effect in a way." (Stakeholder interview Germany)

"It is the event of unemployment that changes the financial possibilities of a household, no matter how solvent it was previously. If the mortgage was accepted under the assumption of two jobs (husband and wife), the loss of one job may alter deeply the financial situation." (Stakeholder interview Spain)

"Long-term unemployment in particular is a problem. In the first few months, the income is of course reduced, but not so dramatically. After a certain period, the support is reduced. Especially if both household members are unemployed, this can be a major problem. Long-term unemployment has increased during the crisis." (Stakeholder interview Belgium)

"The crisis had a severe impact on unemployment, which increased substantially. In turn this had an adverse impact on the ability of indebted households to repay loans. The high indebtedness of the [private] sector made it more vulnerable to a rise in unemployment and to a drop in income." (Stakeholder interview Spain)

6.1.2 Minimum wage levels

As mentioned in the previous section on household types, the links between borrowing and income are well established from various studies, while analysis inter

alia of EU-SILC data in the 2008 EMPL study demonstrated that both gross and

disposable household income is related to the likelihood of being in arrears. An important part of assessing income levels is the presence and level of minimum wage levels, due to their ability to provide an income floor to over-indebted households. Minimum wage levels can differ greatly between countries. Some large Member States like Germany have no national minimum wage,98 _{while others like France, the}

Netherlands, and Ireland, have a relatively high one. Analysing figures available from Eurostat (see table below), austerity measures in the forms of lowered minimum