The number of people in work in the euro zone fell again in the last three months of 2011 while hourly labour costs rose, highlighting Europe's difficulty in driving a US-like recovery in jobs.

Employment in the 17 nations sharing the euro fell 0.2 per cent in the fourth quarter compared to the third, the European Union's statistics office Eurostat said on Thursday.

The size of the working population shrank by the same margin in the third quarter from the second, as the devastating economic impact of the euro zone's sovereign debt crisis began to bite, sucking away business confidence and credit for growth.

The worst of the crisis now appears to be behind the euro zone and investors have been reassured by the European Central Bank's 1 trillion euro stimulus to banks, as well as EU leaders' commitment to budget austerity with a new euro zone fiscal pact.

But as the bloc heads into recession this year, households are suffering from government spending cuts, wage freezes and rising unemployment as the euro zone tries to bring down debt.

Any recovery in the latter part of 2012 is unlikely to be felt much by Europeans, a contrast with the US, where non-farm payrolls notched their third straight month of gains above 200,000 in February, heralding a stronger recovery from the global impact of the debt crisis.

"With Germany likely to be one of the few exceptions, we forecast unemployment rates will rise across the euro zone in 2012, reaching 18.2 million at the turn of the year," Ernst & Young said in a new report on the bloc's economy.

Unemployment in the euro zone rose to 10.7 percent, or some 17 million people, in January, a new record high.

Economists say Americans are benefiting from an increase in hiring because companies were more aggressive in cutting back during the 2008-2009 global financial crisis. European companies were reluctant to let staff go during that time and now have less need for new workers in the weak economic environment.     

Going south     

In southern Europe in particular, unemployment is reaching critical levels, with a quarter of Spain's working population jobless and one in two young Spaniards out of a job.

In Italy, job creation rates went into reverse in the final quarter of last year from the third, Eurostat said.

The depressed economic output in Spain, Greece and Portugal showed little signs improvement and job rates contracted for the fourth straight quarter, both on a monthly and an annual basis.

"Companies are under serious pressure to keep their labour forces as tight as possible to contain their costs in the face of current weakened demand," said Howard Archer, chief European economist at IHS Global Insight.

The price of oil, driven up by almost a fifth this year by tensions between the West and Iran over its nuclear programme, is also making life harder for companies to keep costs lower and leaving little room for expanding staff.

In the euro zone, hourly labour costs rose by 2.8 per cent in the fourth quarter compared to the same period a year ago, climbing 3.3 per cent in industry, Eurostat said, in a sign of Europe's struggle to increase productivity and competitiveness.

The euro zone, with the exception of Germany, has given itself generous pay rises over the past decade during the strong economic growth that followed the introduction of the euro, and that is costing it its competitive edge.

The cost of labour has increased since 2001 by about 12 per cent in the EU as a whole and by almost 18 percent in the euro zone, Eurostat data showed. – Reuters