Of the many bits of bad economic news Spain has received this past year, including finding deficits were higher than expected and growth rates much lower, perhaps no other figure has proven as weighty and daunting as the country’s unemployment rate. Reports released at the end of January saw that number rise to 22.9 percent, adding another dismal headline to the Rajoy government’s first full month in office: nearly 5.3 million people out of work with declines in available positions across the board, from services to the country’s still collapsing construction sector.
Capturing the dour outlook of the country’s current situation, The Atlantic’s Derek Thompson summarized the statistics facing the new prime minister, noting: “The overall unemployment rate is in the mid-20s, industrial production and services activity have both cratered, construction indicators like cement consumption have been devastated after doubling between 1998 and 2007, retail is in a free fall, and export growth (most of which go to Europe) is slowing.”
Amid all the other sour news facing the new government and their recovery efforts, 22.9 percent stood out, dwarfing the rates of fellow EU member states, even those thought to be perilously close to very dark territory. Among those countries most troubling in the eyes of Brussels, Berlin and the global markets, Italy registered a jobless rate of 8.9 percent, Portugal 13.6 percent and even Greece – so worrying to so many, managed to come in under Spain with 19 percent.
Still, while weakened by slow to stagnant growth, Spain has remained an economic force in Southern Europe, especially when compared to damaged economies in Greece and Portugal. So, the exploding rate of job-searchers does not make as much sense when viewed in the larger context of the euro crisis. Sure, things are bad from Barcelona to Cadiz, but does 22.9 percent really reflect the state of the Spanish job market?
To be clear, the unemployment number broadcast to the world is undeniably important to how the country’s current economic challenges are perceived by outside forces. Indeed, the consequences are far-reaching, chipping away at Spain’s fragile confidence and spreading the blame across the economy, including applying higher and higher borrowing rates to banks, no matter how sound an institution might actually be. However, upon closer inspection, the number that looms so large over the country’s ability to rebound does not really tell the whole story.
Bad figures, even in the good times
Spain’s numbers have traditionally been high in relation to the rest of Europe, even in the best of times. After rebounding from a 1993 jobless high of 24.5 percent, the country was driven by a booming construction sector and cheap borrowing opportunities brought about by further integration into the euro economy. Building on that fresh access to capital and real estate development that dwarfed efforts in Italy and Portugal, Spain emerged as a force of growth in Europe, though even then, as the economy exploded, unemployment remained high, bottoming out at a 2006 low of 8.1 percent.
The reason for this inconsistency of economic performance and labour statistics comes down to two factors as far as economists are concerned. First, Spain has historically had a sizable under-the-table market of unreported or part-time workers who are not counted as part of the country’s workforce. In an OECD study conducted in 2006, Francesca Froy and Sylvain Giguère found that Spain’s unregistered job market accounted for almost 22 percent of the country’s GDP in 2002. While recent policies aimed at bringing more of these positions into the light have been introduced, it’s difficult to imagine that they have been successful enough to erase any impact on the country’s jobless numbers.
More recently, others have pointed to the country’s conservative tradition of over reporting unemployment numbers as a way to explain its high numbers in comparison to Greece or Portugal. Vanessa Rossi, an economist at London’s Chatham House think tank, told the Voice of America, “The Spanish unemployment rate might actually be slightly lower than these figures,” adding: “That’s quite in contrast to many other countries that have the opposite problem – they under-report unemployment.”
The youth factor
Second, and perhaps more importantly, the 22.9 figure does little to truly show who is most affected by Spanish unemployment. For that, the more important number is 48.6 percent, representing the number of jobless between the ages of 16 and 24. To be sure, this is the number that plays most heavily into the country’s ability to not only avoid a second recession, but also ensure long-term productivity and competitiveness.
Despite being the most educated workforce in the nation’s history, Spain’s young workers have found themselves locked out of a labour market that strongly favours older workers thanks to the high cost of firing employees. Overly equipped for the few jobs available or under-employed in positions with little pay, many are shifting their attention towards Northern Europe and the United States. While Spain may have experienced this sort of emigration during past economic slow-downs, it has never seen the type of brain drain of its best and brightest that it risks suffering now.
This is not an attempt to downplay the importance of Spain’s jobless figures. No matter how they are broken down or explained, the effect is the same, leaving investors and regional regulators with waning confidence in the ability of the country to grow out of the hole it is currently in. Instead, this closer look at Spain’s job numbers is meant to provide more focus on how solutions can and should be applied by the new government, implementing targeted approaches rather than policies aimed at the population as a whole.
Perhaps worth mentioning too that 23% of the poulation aren’t paying any income tax. Now add that to the broadest definition of funcionarios and you’re getting close to half the working population paying for the other half… remarkable!
A text like would leave anybody wondering: So where is the problem, then?
Well, the country is still under the ill structures that the old regime left. There have been no deep changes but a 40-years work of making it ‘look’ modern and democratic, which it isn’t. It is a feudal country, a banana republic, or both.
Where to start: re-do the Constitution, this time with the People involved and not just the Elite like in the 70’s. Remove monarchy, stop paying tribute to that sect called “The Church”, re-invent the whole R&D sector which is currently counter-productive… Those deep fixes, or back to feudalism, if we ever left it.
Talking from Dublin here, myself an emigrant who would love to get back.
One factor which is having a massive impact on Spain’s employment statistics (and on the economy in general) is the punitive taxation of freelance workers and small businesses. In order to declare yourself legally freelance (‘autonomo’) in Spain, you have to commit to paying a MINIMUM €250 a month (this figure may be higher, not sure) for social security, and that’s before taxes, overheads, materials, outlay, and any kind of profit. Compare this to the minimum monthly social security contribution in the UK for freelance workers (I’m sorry I can’t give you the figure, but I think it is around £20-30).
So what happens? Freelance workers and small business people realise they cannot pay this and expect to pay the rent and eat, so they go under the radar. Or, perhaps they were able to pay before the crisis, but now they can’t, so they register as unemployed while continuing to sell what they can on the black market. Or they just give up and go on benefit while they look for a job which pays SS for them.
You can imagine the effect on the young – you have an idea for a business or service, you want to get started, but how can you commit to paying €250 before you even take a penny? It is well known that new businesses often run at a loss before they get going, but in Spain there’s no room to run at a loss, no chance to take a risk. I’ve spoken to many young people here who would love to start a business, but they don’t dare to, so they just sit and wait for that elusive job. It is a massive disincentive for the more enterprising person. People are working on the black market not because they want to avoid tax, but because the social security contribution is just set too high – they can’t pay and eat.
The government could make a huge reduction in the unemployment figures, while simultaneously bringing thousands back into the system and filling the tax coffers, by setting freelance contributions at a more reasonable level and abolishing the one-size-fits-all system.