“Worst Labor Market” on Earth: Spain’s Jobs “Recovery” Could Hit the Rocks

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

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  19 comments for ““Worst Labor Market” on Earth: Spain’s Jobs “Recovery” Could Hit the Rocks

  1. Martín says:

    The labour contracts are savage aggressively in favor or the workers yes every body’s intitled to compensation for being laid off
    But the big big question is that because of the labour courts favoring towards workers whether their justly laid off or unjustly or to survive the labour judges let me tell you from experience are as one sided negative towards business that’s the main reason for the large un employment situation cases of hundreds of thousands of euros and to appeal this funds have to be available to counter appeal a redicilious and drakonian prehistoric mentality of the social courts

    • Wolf Richter says:

      The sad truth is this: If a government makes it too difficult and expensive to lay off people, or get rid of bad performers, then the risks for businesses get so large and unpredictable (especially for small companies) that they cannot hire and won’t hire under those conditions.

      Governments, funded by taxpayers and debt, have an easier time living with their own policies since they don’t have to make a profit. A business has to make a profit. And a business is confronted with a world that changes constantly, and it has to adjust to this changing world, or else it’ll go out of business – and all the jobs are gone.

      So a well-balanced labor law that allows companies and employees to thrive is crucial for a vibrant economy with strong consumers – and there are many trade-offs.

      • Martín says:

        That’s hitting the nail on the head A equal balance in worker employer is a only way forward but Spain unfortunately with the unions
        Are again a big deterant to business it’s a simple fact that the worker doesn’t pay a cent to go to court buy the employer does so it’s a no win situation
        Example : a company has employee who wishes to get a higher wage so he applies to other company they agree to employ him but he dident just leave He tells his employer he’s due bonuses The employer says for what it’s not in your contract He claims being sacked unfairly goes to social court The judge hears the complaint and says to employer you have to pay him 30.000€ for unfair dismissal The employer says he wasent dismissed he chose to leave , The judge awards him the 30,000€ the employer says I don’t have this money to pay he mentiones that to pay this amount will close his business The judge says that’s your choice either pay or close leaving 5 more people out of work . By the way there’s no appeal in social court To appeal you must deposit the amount awarded . The time for the appeal could be 5 years .!! Madness!! It’s a horror story in Spain !!

      • Mark says:

        Well Wolf if those trillions that were used to underpin the monstrous criminal behaviour of the elites was used to ensure a living wage and thus demand, those issues of growth would not be there.
        It is the serious degradation of the economy through ZIRP that is at the heart of the problem.

      • d says:

        What are the Spanish laws relating to labour only contractors and sub contractors .

        If I was an employer in Spain, this would be my answer to this insanity.

  2. Ptb says:

    The one term in this modern era that’s really been deflated to the point of uselessness is “recovery”.

  3. It could be much worse. The young could be staying and plotting another Republican revolution. However Spain is not out of the woods yet, based on the experience of Ireland. While huge numbers of Irish were indeed driven out of Ireland by the great famine in 1845-1852, the Easter Rising occurred in 1914, and although this was put down with no difficulty, a second rising began in 1919 and was partially successful in 1921 with the creation of the Irish Free State.

    • Lindsay Berge says:

      So they had an Eirexit in 1921 from the British Empire free-trade zone followed by many years of reduced economic growth?

  4. John Doyle says:

    Spain MUST get back its monetary sovereignty. The UK was sensible enough to avoid this trap so it can devalue its currency yet still spend. Greece and the other PIIGS need to get out of the currency union asap.
    The EU in this dysfunctional state is a catastrophe in the making.

    • Mary says:

      Monetary sovereignty with arcane labour laws and lack of any free labour market is not going to help. Plenty of countries are monetarily sovereign and yet desperately poor.

    • nick kelly says:

      The Greek drachma wouldn’t buy anything outside Greece. It would join the fifty or so countries, many in Africa whose currencies aren’t convertible. If the Greek economy was anything like self contained- this would still be bad. As it is, there is scarcely a domestic manufacturing industry. But Greeks want manufactures- owning a printing press doesn’t paper over the gap.
      As soon as Greece gets out of the euro it collapses. They know this, by the way. When the cash machines ran out in the face- off with the ECB- IMF, the Red Cross etc., had to scramble to line up supplies of insulin etc. the master of gamesmanship, Marxist Greek minister of finance realized his bluff had been called.
      Much the same applies to the rest of the PIIGS.
      If Germany leaves they all have to go running to the IMF for emergency loans to support their currencies.
      That’s when the hammer comes down on the bizarre labor practices the article describes.

      • John Doyle says:

        So does it help that everything has been sold off to the Troika banks? They still need monetary sovereignty. That’s 100% solid fact. As to being incompetent they had the biggest shipping industry in the world. It’s not helpful to put your ideas about productivity onto anyone else. Greece’s productivity would give the planet a bit more time to survive before we all go down the plughole. That, ladies and gentlemen is a 100% certainty!

  5. Petunia says:

    I’m confused. Is the severance their only unemployment compensation?

    I know people who got severance after many years of service in the US and they were lucky to get a week per year worked, with a cap of usually not more than 20 weeks. I’m not even sure if in the US you can get unemployment compensation and severance at the same time.

    • Martin says:

      Nope. If they have worked the last 5 years they get unemployment for 2 years. That payment depends on the previous salary but for middle to low wages could start at 90% or 100% of their salary in the first months and end around 50%.
      So many people work 5 years then get unemployment but keep on working without declaring it for 2 years, then back to legal employment. Its crazy.

    • Phoenix Pilgrim says:

      In AZ USA, you cannot collect unemployment until the severance runs out and the # weeks severance is subtracted off the 26 allowable weeks of unemployment benefit. (max AZUBA=$240/wk) Furthermore, if you are even one day older than the minimum eligible age to collect any pension, you are classified as “retired” and are not eligible for unemployment benefits and you are not counted State and Federal unemployments rates.

      Forcing older USA workers into “early” retirement is a big WIN/WIN for .gov and corporations. Millions of unemployment $ can be saved, millions of workers can be “disappeared” from the unemployment rates and corporations can drastically reduce their pension liabilities.

      After working 20.75 years as an MSEE for a multi-national Fortune 500, I was laid off 1 month after the “minimum early retirement” age of 55. This reduced the potential pension benefit by 30% because I “terminated employment” prior to the min 30 yr employment for max pension accrual and pension math rounds 20.75 years down to 20. The remaining pension benefit is further reduced by an “early retirement” penalty of 5% for every yr of pension payout between ages 55-65 as the last 50% of benefit accrual occurs between ages 55-65. I had to sign a gag order and waive my rights to sue for age discrimination to collect the severance. My old job went to an H1-B visa from India.

      A typical engineering pension was 25% of last 5yr-averaged salary.
      Ex.) $140k/yr => $35K/yr max pension if age 65 with 30yr employment
      => $11.7K/yr pension if age 55 with 20yr employment ($35K x 20/30 x 50%)

      Computer algorithms generated layoff lists based on maximum pensions savings then backfilled appropriate age and position targets to make layoff lists look age-discrimination unbiased. Most US industry pensions were eliminated 10-20 years ago and replaced by variable performance-dependent 401K matches of 0-4%.

      • Petunia says:

        Thanks for sharing the particulars of your situation. The public needs to know what’s going on because the press will never report it. The truth is that both political parties are in the pockets of big business and the press is captive as well.

        I feel your pain because you could have funded a 11K a year pension with less than 10K, 20 years ago and have been better off.

  6. Martin says:

    All of it comes to education. In Spain the message you receive from the government is do not worry too much about your future as we will support you through unemployment, public pension, free unlimited education until uni and free unlimited health system. Some guys need to learn that humans need incentives.

    • JerryBear says:

      Like lashes of the whip? Starvation? Locked in a cage? Slaves get all kinds of “incentives” to continue in their toil and drudgery.

  7. NotSoSure says:

    I am getting conflicting messages after reading about this: http://www.foxnews.com/world/2016/10/14/economic-bubble-spain-nears-300-days-without-govt.html

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