“The worst labor market” on the planet: unemployment exceeded 20% in three downturns over the past 35 years.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
Spain’s unemployment rate ticked up by a quarter percentage point to 14.7% in the first quarter of 2019, when economists had expected a down tick, as the number of people claiming unemployment benefits increased by 50,000 to 3.35 million, according to data released by the National Statistics Institute (INE). Although it’s not unusual for unemployment in Spain to tick up during the first quarter, this is the biggest quarter-on-quarter increase in six years and it highlights a persistent weak link in an economy that has done nothing but grow since late 2013.
The biggest job losses were registered in the services sector (69,000), followed by industry (8,600) and construction (2.500), raising concerns that the generalized economic slowdown affecting the European economy has spread to one of the region’s fastest growth engines. There are also fears that the recent slowdown of Spain’s tourist boom could lead to a larger cull of local jobs than usual this year.
But there are still some silver linings. Economic growth in Spain may have slowed in recent quarters but it’s still chugging along at an annualized rate of around 2.4%, among the highest growth rates in the Eurozone. And while unemployment may have grown in the first quarter of 2019 at the fastest rate since 2013, the Spanish economy did manage to create 596,900 jobs over the previous 12 months, the highest figure of job creation for a one-year period since the summer of 2007, before the start of the economic crisis. And things are clearly better than they were six years ago when official unemployment in Spain was an eye-watering 26%.
But that’s where the good news ends and the bad news recommences. The unemployment rate is still above 20% in five of Spain’s 17 autonomous regions: Andalusia (21.1%), the Canary Islands (21.0%), Extremedura (21.1%), Ceuta (22.3%), and Melilla (25.9%). In fact, there are only two regions — the Basque Country (9.6%) and Navarra (8.2%) — where unemployment is below 10%. By comparison, the Eurozone average unemployment rate is 7.9%.
In the words of Javier Diaz Gimenez, a 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 (or so) years,” he told Forbes (chart via TradingEconomics):
Even during the glory days of Spain’s mind boggling real estate bubble, when more new homes were being built in Spanish towns, cities and coastal resorts than in the UK, France and Germany combined, unemployment never got below 7%.
Just one out of 36 OECD member countries has a higher unemployment rate than Spain, and that is Greece, with a rate of 18.5%. Turkey, which is in the throes of a full-blown political, economic and currency crisis, has seen its unemployment rate spike from 9.8% in May last year to 14.7% now, same as Spain.
When it comes to youth unemployment Spain also comes in second worst out of 36 OECD economies (again, after Greece), with a youth unemployment rate of 34.4% — more than double the Euro Area average. It’s no mean feat given the hundreds of thousands of young Spanish workers who have left the country for greener pastures since the crisis, including an estimated 10% of its homegrown scientific researchers.
There are many, often deep-seated reasons why Spain has such a bad rep when it comes to unemployment. Here are four of the most important ones:
Mass destruction of construction jobs. During the lead up to the financial crisis, Spain’s construction and housing industry generated 13% of total employment and 12% of GDP. But when the bubble burst more than half of those jobs, many of them full time and well paid, were wiped out. Today, the sector employs just 1.21 million people.
Huge informal sector. Spain, like Greece and Italy, is home to a vast submerged economy where hundreds of thousands of workers have no contracts and pay no taxes or social security. As such, the number of unemployed — while still high — is almost certainly smaller than official figures suggest.
Acute seasonality of today’s biggest jobs generator, tourism. As the construction sector has declined, the tourism and hospitality industry has taken its place as the biggest employment generator, accounting for 13.7% of all jobs in 2018. But workers in the sector earn a median wage of just €14,000 — 48% less than their counterparts in the construction industry before the crisis. And most of the work is more precarious due to the seasonal nature of tourism. According to El Pais, almost one out of every three jobs in the tourist industry is temporary.
Bipolar nature of Spain’s labor contracts. Employment contracts for permanent jobs in Spain are exceedingly rigid and extravagantly generous when it comes to redundancies, with workers receiving up to 45 days’ severance pay for each year worked. This makes it prohibitively costly for companies to lay off workers. To gain some degree of hiring flexibility and reduce fixed costs, companies often use temporary contracts. Many abuse them. The inevitable result is a two-track labor market that encourages employers to create precarious, short-term jobs and discourages them from hiring young people as permanent employees. According to the European Commission, Spain has the highest share of temporary jobs (26%) in the EU.
Until this bipolar nature of Spain’s job market is addressed head on, unemployment in Spain is unlikely to fall much lower than its current rate, as the IMF recently warned. Which means that when the next downturn hits, it probably won’t be long before that 20% barrier is surpassed once again. By Don Quijones.
Spanish banks expanded aggressively into Emerging Markets to flee the consequences of the euro debt crisis. Read… Threat of Contagion to Eurozone from Spanish Banks’ Huge Bet on Emerging Markets: UBS
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Excellent piece DQ.
Tomorrow there are general elections in Spain. You’d think that unemployment ought to be the top item in the debates but it was pretty much ignored.
Catalonia’s push for independence seems to be the only thing Spaniards care about. Not unemployment, not widespread corruption, not the politicization of justice, not the African immigration, not the judges having become inquisitors, not the loss of two generations, not the renaissance of fascism, not the massive inequality, not the emigration of the brightest youth to other countries… none of that matters. Crushing Catalonia’s independence movement is the only thing Spaniards can agree on.
Spain is slowly becoming a third world country. The food is still exceptional though !
=>The food is still exceptional though!
James A. Michener in Iberia gives anecdotal evidence of the difficulty of doing business investment in Spain due to rites of access imposed by aristocratic gatekeepers, all with their hands out.
That hasn’t changed in the intervening years. The average Spaniard knows that this unofficial bureaucracy of aristocrats isn’t likely to allow him the circumstances under which he can prosper. As a result, this average Spaniard typically pursues a good quality of life instead of the remote possibility of a higher standard of living.
Similar situations obtain in other countries with an old entrenched privileged class, like Britain and France. This probably accounts for that stereotypical lack of work ethic in France and Spain, of the type for which Germans are often commended.
It’s mostly been this way in Spain since the completion of the I>Reconquista under los Reyes Católicos centuries ago, and isn’t likely to change. Attempts at liberal reforms in Spain are typically fended off by vested interests, distorting them in such a way as to end up bloating the government bureaucracies, preventing real reform and discrediting any further attempts.
Spain brought tons and tons of gold and silver back from their conquests in the Americas. The aristocracy spent it on luxuries and wars instead of using it to improve the productivity of the country.
It didn’t help that for centuries the aristocracy was entitled to run their herds of Merino sheep hither and yon through the farmlands of the peasantry, or that the Guerra Civil Española took out most of the infrastructure, or that Franco was an idiot who wasted billions on vanity projects.
=>Spain is slowly becoming a third world country.
A lot of Spain never rose above Third World status in all of its history, which could be said of other, famously wealthier countries as well, but at least it has a reasonably-functioning state medical system that isn’t simply run for the benefit of profiteers.
This is what I get for not having an editor.
This is the main reason why unemployment is so high in Spain. Government “helping” private sector employees with all sorts of insane regulations against their employer.
I am sure it made for some spiffy political commercials and bought some votes.
And then the consequences of those insane regulations set in.
No real jobs for anyone.
So all those regulations made things even worse.
There is a lesson in there somewhere.
“Employment contracts for permanent jobs in Spain are exceedingly rigid and extravagantly generous when it comes to redundancies…”
=>So all those regulations made things even worse.
I’m sorry 2b – may I call you 2b? – but you rather missed the point.
Not because regulations per se were imposed, but because they were the wrong regulations, and intentionally so, and distorted for the purpose of protecting vested interests.
Like the corporatist hero Andrew Jackson said, it is to be regretted that the rich and powerful too often bend the acts of government to their own selfish purposes.
There are many examples.
A major takeaway from this article is that economic growth isn’t everything, insofar as it contradicts the just purpose of economic activity, to support all people, and not merely to enrich the wealthy.
The blind pursuit of growth for that latter purpose, to the exclusion of any other, not only creates a heinous social injustice but must ultimately ruin the ability of the planet to support human civilization at all.
I think most US’ians if they could afford to escape the US, would be very happy in Spain.
alex – Exactly. The average Spaniard is happier and healthier than the average American. Americans have jobs and consume more stuff, but overall quality of living is much worse in America.
It’s great that we all slave away at jobs our whole lives, but is that really that point? To accumulate more crap so we can create more “jobs”.
The source of the job growth in America is a major problem. Defense spending, housing, and healthcare. Our economic growth is dependent on blowing up other countries and rebuilding them, buying and selling houses, and making people so fat and stressed that they require hospitalization.
Quite true about the old aristocracy still being very powerful in Spain: my cousin -himself titled although not grand – and who is a top commercial lawyer in Catalonia, deals almost exclusively with that class. They still hold the ends of many strings….
But really, the true privileged aristocrats these days are the class of full-time, state workers, the ‘funcionarios’ mentioned by Don Q: they can do next to nothing if they want, and are simply unsackable. ‘Austerity’ meant keeping them in their jobs, and not recruiting the young for many years.
Nearly all my family belong to that class, (and career) politicians) and are doing very well. We used to be landowners, but state employment for life is an even better gig! (I alone really work for my bread and chorizo, with my hands – I wouldn’t wish to be like them).
However, even in that group there are very wide differences in salary between the regions, as with unemployment.
Being state workers, and theoretically Socialist, they talk about ‘solidarity’ in the face of austerity: but just you try to liberalise their employment contracts….pure hypocrisy. I’m in and I’ll pull up the drawbridge behind me is their fundamental attitude.
They are also an important bloc vote, and politicians run after them. The gulf between them and workers in the private sector is widening, and causing much resentment.
The idle bastards need a good kick up the backside. But they won’t get it if their political patrons can help it.
As for the higher employment in the Basque Country and Navarra, the salaries are awful in the private sector and there is much disillusionment among the young, and the slowdown is now biting even there.
I was surprised to hear my favorite gitano singer, El Cigala, is now a citizen of the Dominican Republic. Are all the rich and famous leaving Spain?
“Spain is slowly becoming a third world country.” A cynic would say it is _reverting_ to being a third-world country: in my youth (and before) there was a saying in France that Africa starts at the Pyrénées.
Well at least tourism has kept high, oil sort of low, new starts were up to 100k last year… which is down from over 800k at peak, and they’re economising on electricity consumption lately, industry is anyway. Public employment is on a winning streak too.
I suppose repeat elections again are because the last few were so good, duplicate parties crossmatching so many differences that really expecting any kind of leadership is hopeless.
“Hasta los cojones de todos nosotros” etc.
Two tidbits from Spanish relatives –
1) Apparently it is common practice to record property as owned by other family members, to minimize the assets at risk if someone takes legal action against you. Presumably that would mean recording property as owned by older relatives or those not doing business.
2) Apparently Spaniards are very deferential towards bureaucrats and gov employees – a holdover from their somewhat recent history as a dictatorship.
In one instance, my US-raised Spanish-speaking relative yelled at some paper-pushers who idly chatted for an extended period, rather than attend to a line of hundreds of needing documentation processed. Everyone was at first taken aback and then they started clapping – non-obsequence towards gov employees was unheard of.
typo: hundreds of *people*
Obsequious, yes, despite the pride and the pundonor, the gracia, where so many have duende upon them, and the poverty, and yet still essentially ungovernable, “like Texans squared.” Only in Spain can an artistically slaughtered bull become a tragic hero.
A nation of contradictions, where ‘economic growth’ only leaves so many behind, according to its nature.
They successfully replicated their system in Latin America, so it must be good.
Madame de Stael:
‘The Englishman likes to sit down in the evening after his labours and count up his profits and achievements. Whereas, the Latin wakes up thinking of all the great deeds he will do and the honour he will accrue, and retires to bed disillusioned and cynical’.
(Not that the Brits are what there were any more, alas.)
Add the North African element in the Spanish character, and the national spine broken by the decades of the Dictatorship, and there you have it……
At least the wine is still good, and the women – as ever – incomparable.
I once went to pay a water bill in Spain, the room was full of people and each person to be served was taking a long time. They had a numbered ticket system in place, so I took one and went for a walk. Obviously by the time it was my turn everyone who had been there had gone, and it was a new crowd. Well as I walked back in about a quarter of an hour later it was exactly my number and the previous customer was just turning away from the counter. I walk straight up and start getting served… and now have an idea of what it is to be on the wrong side of the crowd.
Spain like many other countries in Europe abuses the freedom of movement legislation to export a large % of its unemployment.
Think how high the numbers would be, if all those Spaniards, many of them highly skilled, currently undercutting rates in other European centers, were forced to return to Spain. Then think how much lower unemployment would be in their current host nations.
Well, should unemployment waver for a mere second, “they”, “Danish Industry” will be pulling in 3’rd worlders to keep it up! They are still trying this on, but, thankfully there is the argument that they can easily hire within the EU.
Thus Greeks and the Spaniards are simply doing their part in blocking real 3rd wold conditions and that they are skilled and good workers too doesn’t hurt.
Service in British shops at least noticeably improved with the advent of Eastern European and Continental workers. It would be tragic to lose them. Smartly dressed, civil, and eager to do their work.
Sorry, the people Spain exports are the well educated. I can’t see how you would call that abuse from Spain. It is more Spain that is abused in paying the education but not receiving the work. It is Eastern Europe that exports the less educated.
ps. Unemployment would be higher in the receiving countries, not lower.
Super duper smart leftists keep telling me if only we raise taxes on evil rich people, and give everyone “free” health care, we will have an economic utopia.
Spain has “free” health care, a 45% top income tax and a 21% VAT.
And yet their unemployment rate is 400% higher than evil capitalist America’s. Weird huh?
The question is is the total cost for healthcare & tax for a not 1% higher or lower in Spain or the US.
Unemployment rate has always been suspect in Spain. 7% unemployment during the boom doesn’t sound realistic nor 15% unemployment without revolutionaries walking down the street.
ps. Since when is the US a free market economy. Seems to me to be more a collection of corrupt monopolies.
From what I have seen in the air transport industry so far this year, Spain had better look out for the competition originating from Turkey. Those lines of narrowbodies waiting to land in Antalya and Izmir are getting pretty long and while Barcelona and Palma de Mallorca are the usual complete insanity, Ibiza and Malaga are not doing as well as last year. Third tier airport like Alicante and Girona are not doing well, to put it midly, but increased landing and handling fees may have something to do with it.
“Entry level” tourists (I am feeling charitable today) are very sensitive to prices and with the Turkish lira getting bludgeoned back to where it belongs and prices in Spain heating up (the price for all that nominal GDP growth: inflation without compensation) Turkey is becoming very attractive for the average Scuttle Tours customer.
Turkish airlines need the hard currency so they are more than ready to cut smoking hot deals on tickets if you pay in euro or pounds. And people are buying: Corendon Airlines is booked solid on the Frankfurt-Antalya route until the second half of June. That’s a whole lot of people not going to Croatia, Greece, Spain or Italy.
Egypt is pretty aggressive as well this year, but the Egyptian pound has strengthened a lot on the euro year on year (about 10%). The 2016 devaluation is getting long in the tooth and weakening the euro without causing savers and retirees to torch the Eurotower has become standard ECB policy. This is a race to the bottom after all.
While it’s likely tourist numbers in Spain will be only marginally affected by Turkish competition, entry level tourism, the kind most of Spain specializes in, is a business with rice paper thin margins. It needs huge ever-growing volumes to be profitable, and if those volumes start stagnating or, worse, declining profits will go up in smoke and with them quite a few jobs.
Very true: my English barber (actually very well off, he’s in Jermyn Street) told me that he and his golfing chums partly judge a destination on the cost of drinks after the game. They abandoned Spain when it went over a certain level and was no longer ‘cheap’.
How does the way Spain calculate unemployment compare with how the U.S. calculates it? Are they actually apples to apples?
They should just ‘fix’ their unemployment problem using the American method. In America, after a person has been unemployed for a certain number of weeks, they are magically declared to be no longer unemployed. Plus, as an extra benefit to the 1%, the support checks for the unemployed are also terminated. Its a win-win for the country-club set.
Yup. Until they get a liver cancer from the hepatitis festering among the people that are living in the streets!
Inequality affects the lifespans of the elites too.
Petunia (at the risk of making one comment too many according to the rules!)
No, the rich and famous are not leaving Spain.
It’s a wonderful time to have money, almost as good as the Franco years.
In particular, capital now has full control over labour: you can do almost anything you like to your desperate workers (one of my cousins, who has no scruples, does just that in his construction business. How he sleeps at night I don’t know.)
Really, the conditions are almost 19th century in terms of the power inequality.
Thank god for the pretty decent health service which redresses the balance, and of course fairly decent living conditions: if people are short of cash, they can still access the family villa and pool built in the good years, and families do tend to hang together more.
The Spanish sheeple just voted to have the globalist quislings of the socialist party rule over them. They deserve every bit of the misery that is going to be inflicted on them.