Where Did All the Workers Go?
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
Two years ago, the total number of unemployed in Spain, officially speaking, was 5.5 million — the equivalent of 23.2% of the country’s active population. It was the second-highest unemployment rate in the EU, far worse than third-place Hungary (18.5%) but not quite as terrible as Greece (26%).
At that time, Spain was also proud home to the five European regions with the worst levels of unemployment. At the top of the heap was the southern province of Andalusia whose unemployment rate was close to 35%! Even fifth place, Castilla-la Mancha, had an unemployment rate of 29%.
Now, after two years of consecutive quarters of robust GDP growth and an unprecedented tourist boom, things appear to have changed. At last count, unemployment was down to 17.2% — still depression-level, but no longer apocalyptic! For the first time since 2008 the number of unemployed in Spain is below four million. Even in Andalusia things are apparently improving since the region’s ranks of jobless have shrunk by 160,800 in the last year.
This is all welcome news in a country with such chronic unemployment problems, but there are two important caveats: first, the active population in Spain continues to shrink, and that has an important hand in the improving figures; second, almost all of the new jobs that are being created are of the poorly paid and highly precarious kind.
Where Did All the Workers Go?
In the last five years Spain has lost just over 760,000 active people — citizens who were counted as part of the labor market, either as employed or unemployed but actively seeking work. These lost people have moved into retirement age, have left for greener shores where better quality, higher paid work can be found, or they’ve given up looking for work altogether.
This decline in Spain’s active population is of such magnitude that it is responsible for one-third of the total reduction in the unemployment rate between 2012 and 2017, reports Spain’s financial daily El Confidencial:
In 2012 unemployment stood at around 24.5% of the working population, and by the second quarter of this year it had fallen to 17.2%. Of this 7.3% decrease, 4.6 percentage points came from the growth in jobs and the other 2.7 percentage points were a result of the collapse in the activity rate. In other words, a third of the fall in unemployment is due to the shrinking number of people in the labor market.
The brunt of this trend has been borne by Spain’s youngest workers. Ten years ago, the 24-29 age group was the largest segment in the labor market with many employed in the construction and real estate bubble before it collapsed; now it’s the seventh largest. Many of the people in this age group have chosen to upgrade their studies or move elsewhere. More worrisome is the fact that the 30-39 age group has also lost ground over the last five years, since the most logical reason for their statistical disappearance is that they have given up even looking for new work.
The level of unemployment in Andalusia may have fallen slightly in the last year but conditions remain harsh. According to a new study by Anadalusia’s Youth Council, eight out of ten under-30s who found work in the past 12 months year couldn’t leave their parental home. They simply aren’t earning enough money to rent an apartment and even if they were, their new jobs are unlikely to last long enough to afford them any degree of financial security.
It’s a common problem across the length and breadth of Spain. According to the Spanish daily ABC, of the 1.7 million job contracts signed in December last year, over 92% were for temporary jobs. In April, 28% of the new jobs created had a contractual duration of less than a week. Of the new jobs, 43% lasted less than a month.
There are two main reasons for this trend: one, most of the new jobs being created in Spain are in the tourist and hospitality sectors, which are highly seasonal; and two, the bipolar nature of Spain’s labor contracts.
Since the Franco dictatorship, Spanish workers, many of them now in their fifties and sixties, have had open-ended contracts that are both exceedingly rigid and extravagantly generous when it comes to layoffs. 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.
In the wake of the crisis, the government’s labor reforms made it even easier for companies to hire and fire. 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 long-term employees.
Things have gotten so bad that even the Bank of Spain — one of the biggest cheerleaders of the government’s labor reforms — has warned about the threat spiraling wages poses to the ECB’s efforts to ignite inflation in the Eurozone. Even as the health of Spain’s macroeconomy improves and new jobs are created, the number of people struggling to make ends meet continues to rise.
Somehow Spain’s new generation of unemployed, underemployed, badly paid, or “ni-nis” (Not in Employment, Education or Training or NEETs) will soon be expected to maintain over eight million pensioners, who are living longer than ever and are used to earning an average state pension of €906 a month, the second highest (as a percentage of final salary) in Europe after Greece. Yet many of Spain’s young workers cannot even support themselves financially, let alone millions of their grandparents’ generation. By Don Quijones.
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