No Country for Young Men (Or Women)
By Don Quijones, Spain & Mexico, editor at WOLF STREET.
Since hitting a dizzying peak of 26.9% in the first quarter of 2013, Spain’s unemployment rate has declined steadily, though it’s still the second highest in Europe after Greece. At last count, in July 2016, it was hovering around the 20% mark.
In other words, the proportion of the country’s labor force deemed to be actively looking for work has gone down from just over a quarter to one-fifth. What’s more, if recent developments are any indication, things could be about to take a turn for the worse, all over again.
Welcome to the “Worst Labor Market” on Earth
By even today’s global standards, conditions for Spanish workers (and non-workers) remain grim. According to Javier Díaz-Giménez, professor of economics at IESE Business School, Spain can justifiably “brag” of having “the worst labor market” on the planet. “It’s very hard to find labor markets that have been able to break the 20% unemployment barrier three times in the last 30 years,” he told Forbes.
The main reason for this freakish anomaly is the bipolar nature of Spain’s labor contracts. Traditionally, Spanish workers have had open-ended contracts that are both exceedingly rigid and extravagantly generous when it comes to layoffs. During the Franco dictatorship, workers received up to 60 days’ severance pay for each year worked, making it almost impossible for companies to lay off workers without putting themselves out of business. Today, even after a host of labor market reforms, Spanish workers still receive 20 days’ pay per year worked.
To give companies some degree of hiring flexibility, without completely alienating unions and workers, Spain’s government liberalized the use of temporary contracts in 1984. Lasting a maximum of two years (at which point the employee has to move on or be given a permanent post), the contracts offer meager protection, miserly layoff payouts, and usually dismal pay.
The inevitable result has been a two-track labor market that encourages employers to create precarious, short-term jobs and discourages them from hiring young people — or anyone, for that matter — as permanent employees. Temporary contracts abound, accounting for a quarter of all jobs in Spain, the second-highest rate in the EU after Poland.
Since the crisis, the situation has only worsened, as temporary, low-paying “bullshit” jobs have become an endless, inescapable reality for all too many, particularly the young and inexperienced. Yet if someone finally gets one of these jobs to nowhere, they’re lucky! Despite three years of unbroken economic growth, Spain’s job-starved youth still face an almost one-in-two chance of being unemployed. That’s officially speaking, of course, since some of those workers have off-the-books jobs.
No Country for Young Men (Or Women)
Many of the country’s best and brightest have already parted for greener pastures. “The recession led to the biggest migration in Spain’s history,” the Bank of Spain lamented in a report last year. Since 2010, the brain drain has been of around 400,000 people annually. Of those that have stuck around, many end up on the eternal internship carousel, as I reported in No Country for Young Men.
Those fortunate enough to find proper paying work are lucky to hold onto their job for more than a month or two, with over a quarter of jobs lasting for one week or less. This is largely a result of the spectacular growth of Spain’s tourist industry, which in 2015 accounted for 14% of the country’s GDP, providing 2.1 million jobs. Last year the country attracted 68.1 million visitors, over 11 million more than in 2008, as travelers forewent other popular but geopolitically unstable Mediterranean destinations, such as Tunisia, Egypt, Turkey and even France.
Spain’s hospitality sector, the biggest beneficiary of the tourist boom, is one of just two sectors that employs more people today than before the crisis. The other is the public sector (quelle surprise!), where new jobs have been fueled by a massive growth in government spending during Spain’s interminable election year (Jan 2015-today).
By contrast, other key industries such as construction and manufacturing are still struck in the doldrums. In the second quarter of 2016, Spain’s manufacturing industry provided 2,264,500 jobs, 771,500 fewer than in the second quarter of 2008. Things are even worse for Spain’s construction industry, which provided 2,559,400 jobs in the second quarter of 2016, over a million fewer than in the same period of 2008 when Spain’s insane real estate bubble was on the verge of being popped. The retail and wholesale sectors have fared little better, having lost 300,000 jobs in the eight years.
In other words, Spain’s much-vaunted job recovery is anemic at best and illusory at worst, and could be on the verge of running out of steam altogether, thanks to a new ruling passed by the European Court of Justice in Luxembourg.
A Spanner in the Works
In mid-September the EU’s Court of Justice (ECJ) ruled that Spanish labor market laws are in breach of common EU laws as they discriminate against workers based on their contract, arguing that both permanent and temporary workers should be entitled to the same compensation if they’re fired — i.e. 20 days per year worked.
The ruling was specifically aimed at so-called interinos (substitute temporary workers), who aren’t entitled to any severance pay at all regardless of the amount of time worked or duties carried out. There are currently 486,000 workers temporarily substituting other staff in Spain, all of whom, according to the EU ruling, are now entitled to equal treatment as permanent workers.
As El Economista reported this week, more than half of them are employed in the public sector. That means that hiring and firing in one of Spain’s two thriving job-providing sectors is about to get a lot more expensive. It also means that Spain’s ridiculously indebted government could soon face a wave of lawsuits as thousands of former employees seek compensation for being fired or laid off.
An even greater risk is that the scope of the new law, which has already been accepted by Spain’s supreme court, is extended to include many other categories of temporary workers, including contract workers (who are key for the construction industry) and casual laborers, both of which are currently paid 12 days compensation per year worked. Such a change could end up effecting over two million workers, hundreds of thousands of whom also work in the public sector.
Unsurprisingly, Spain’s biggest business lobby group CEOE is far from happy with the ECJ ruling, arguing that the law should, at the very worst, apply exclusively to substitute workers. If its reach is extended, it argues, it could end up undoing Rajoy’s 2012 widely lauded labor market reforms, which largely consisted of making it much easier for firms to hire and fire workers while doing precious little to address the rampant dysfunctionalities in Spain’s employment laws.
That, coupled with the ruthless cut in public spending that is guaranteed to transpire the moment Spain finally gets a new government, assuming it ever does, should be enough to ensure that a jobs recovery that barely ever existed will very quickly fade to nothing. By Don Quijones, Raging Bull-Shit.
It “could be” a good deal for taxpayer. Read… Kicking Cans Down Long, Empty Roads, Spanish Style