Spain’s Unemployment Conundrum
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There is only a glimmer of light in Spain’s long unemployment tunnel after five years of recession. This is because a new economic model has yet to emerge to replace the one excessively based on the property sector, which collapsed with devastating consequences.
The depth of Spain’s crisis is such that the country, with 11% of the euro zone’s GDP and a population of 47 million, has 5.9 million unemployed (around one-third of the zone’s total jobless), whereas Germany (population 82 million and 30% of the GDP) has only 2.8 million jobless (15% of the zone’s total).
Spain’s unemployment rate of 26.2% is the highest in the developed world (more than double the euro zone average) and five times higher than Germany’s rate of 5.3%, the lowest since reunification in 1991, and it is forecast to remain at around this level for several years.
This disproportionate difference cannot be explained away by Germany’s widely used kurzabeit system, under which companies agree to avoid laying off workers and instead reduce their working hours, with the government making up some of the employers’ lost income, or by Spain’s labor market laws.
The Spanish economy has not contracted significantly more over the last five years than the German, French or Italian economies, and yet its jobless rate, unlike in these other countries, has skyrocketed.
The problem is as much related to Spain’s lopsided and unsustainable economic model, disproportionately based on the labor-intensive property sector. This model created millions of jobs, mostly temporary ones, when the economy was booming and destroyed them equally massively when the housing bubble burst. Moreover, it acted as a magnet for immigrants, without whom so many houses could not have been built. Their unemployment rate is 35%. Of the 3.7 million jobs shed since 2007, 1.6 million were in construction.
The government’s labour market reforms have lowered dismissal costs and give companies the upper hand, depending on their financial health, in collective wage bargaining agreements between management and unions. Facilities were provided to adapt working conditions, including hours and salary.
The reforms are having no significant impact on job creation. They will, however, lower the GDP growth threshold for net job creation from around 2% to 1.3% when the economy starts to grow again. But Spain is not expected to expand by more than 1 percent until 2016.
The previous economic model was incapable of creating jobs on a sustained basis and a new model has yet to emerge. Given the state of the education system and the large pool of unskilled workers, it will be very difficult to change the model. One in every four people in Spain between the ages of 18 and 24 are early school leavers, double the European Union average but down from a peak of one-third during the economic boom, when students dropped out of school at 16 and flocked in droves to work in the construction sector. Equally worrying is that one-quarter of 15-29 year-olds are not in education, training or employment (known as Ni-Nis).
Results in the OECD’s Pisa tests in reading, mathematics, and scientific knowledge for 15-year-old students and for fourth-grade children in the TIMS and PIRLS tests are also poor; no Spanish university is among the world’s top 200 in the main academic rankings and research and development and innovation spending, at 1.3% of GDP, is way below that of other developed economies.
In these conditions, a more knowledge-based economy is a pipe dream, compounded by the government’s short-sighted cuts in R&D and education spending. Furthermore, the decision of the US company Las Vegas Sands to site Europe’s largest casino, conference, and hotels complex on the outskirts of Madrid accentuates the already skewed economic model.
The IMF has urged the government to deepen its labour market reforms in order to lower unemployment. The Bank of Spain raised the controversial idea of suspending the minimum wage in certain circumstances. One option would be a German-style mini jobs scheme.
The one bright spot is exports, but this sector cannot create sufficient jobs to make a major dent in unemployment.
With the construction and property sectors unlikely to get back on their feet for a decade, massive job cuts in the public administrations in order to cut the budget deficit and depressed domestic consumption discouraging the creation of new firms, the employment outlook is bound to remain bleak. For how long will Spaniards remain so resilient?
(*) The author’s new book, Spain: What Everyone Needs to Know (Oxford University Press), was published in the US in July and will come out in the UK in September.
An analysis full of common topics and doubtful statistics. No real hard opinion is given about the situation of people cheating the system. The abuse in the Unemployment System is ignored. We don´t need wise men from abroad to give us information about what we know better. We need honest people reforming the system and imposing the labor laws.
But of course the author has two extra points. Very sad
Tks for your comment. Which of the statistics are doubtful?
As for cheating the system, which I agree exists, (and a vibrant shadow economy), the blog is not about these issues but about how Spain’s unemployment problem is closely tied to its (stupid) economic model.
And yes, we need people to reform the system, etc.
Having lived in Spain for the past 27 years, I find it very difficult to believe that the unemployment rate is as high as the official figure says. And this does not mean that I am denying the seriousness of the problem – just questioning how high it really is. In 2007 Spain’s jobless rate was 8% which at the time was regarded as approaching full employment, as companies complained then that they could not find people to work for them. (8% unemployment for an economy like the US or the UK is considered to be high!). So maybe 20% is a more realistic figure for the jobless rate – this is still almost double the EU average.
Personally speaking, not even US hire and fire laws would make much difference to Spain’s unemployment, because of its economic model. Of course, there is always Eurovegas to soak up the unemployed while it is being built ……….
Mr Chislett
Excelente análisis de la realidad laboral en España. Se olvida de mencionar que lo que perpetuará el problema es una clase política ensimismada en la ardua tarea de la auto perpetuación, corrupción e incapacidad de entender los problema del país, mas allá de ganar las próximas elecciones. Como ejemplo valga la reacción exhibida por nuestros dirigentes, incluyendo los “nada politizados” rectores de universidad, ante la ley de educación. Nos quedamos siempre en la periferia, sin entrar en el problema principal de un sistema educativo que forma opositores decimonónicos mas que educar para el siglo XXI.
Tiene razón. La clase política en España es una casta.
Adelantemos. Partamos como premisa de que el enfermo esta muy grabe. Aceptemos que el Gobierno sabe el tratamiento (oposición tb) pero… ¿quien le pone el cascabel al gato?. Es un simple problema psicológico: COMO CONVENCER AL PP DE QUE NO PIERDE VOTOS HACIENDO LO QUE DEBE HACERSE.
Arriesgando quimeras.- Si el PP actuá de forma contundente contra el fraude del paro, va a perder votos ¿pero que votos?. Acaso cree el PP que el defraudador no sabe con que partidos se defrauda mejor al paro (1) y si es así no votara siempre el falso-parado a esos partidos “más permisivos”, luego ¿qué quiméricos votos pierde?. (2) En cambio esta actuación seria bien vista por:
a) su clientela natural: clases medias y autónomos
b) parados reales (“disminuyendo el fraude, queda más dinero para los parados verdaderos”)
c) los que mantienen empleo (“restando fraude se podrían bajar las cotizaciones y al serle menos gravoso al empresario los puestos de trabajo tu empleo esta mas seguro”)
El héroe.- Si hacemos correr la voz de que en el PP se esta para servir y no para perpetuarse (dos mandatos/Aznar). En la segunda legislatura los gobernantes tienden a querer pasar a la historia y se despreocupan de sus sucesores (foto de de las Azores)
El demonio.- Siempre tiene que haber un malo y que no sea de los nuestros, a ver un poco de imaginación, algún país europeo exigente y disciplinado como… vale, ese que esta usted pensando.
Bueno, tengo que irme, pero no estaría nada mal atacar ese 8% de falso paro, seria bueno para el país económica y moralmente.
Egosum
(2) ¿Quien puede oponerse a que se persiga al defraudador? Las empresas con trabajadores ilegales y en paro revientan los precios y ponen en peligro los puestos de trabajo de las legales ¿Qué Sindicato o Partido que se opondría a esto, estaría atacando el trabajo legal y estable de sus propios afiliados y votantes?
(1) Intentare no ser explicito, pero si considera que digo cosas “políticamente incorrectas”, simplemente no lo publique.
Excelente artículo. Además de las razones que apunta el autor, en relación con la existencia de un modelo económico insostenible basado en el ladrillo, también una parte importante del desempleo se explica por la fragilidad del mercado de trabajo, y en especial por el pésimo marco contractual (contratos indefinidos versus contratos temporales) existente. Si solo fuera el factor modelo productivo, el desempleo se habría concentrado en el sector de la construcción. Sin embargo, los datos son abrumadores en el sentido en que el desempleo se ha extendido transversalmente por toda la economía. Hay que lamentar que la actual reforma laboral no rompa la dualidad del mercado de trabajo, sino todo lo contrario. Las razones que aduce el Ministerio de Empleo para no impulsar un contrato único son de chiste.