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Spain Faces Stubbornly High unemployment Rate

Some 1.5 million more jobs are needed to regain the 2007 pre-crisis employment level
Part of the problem of the high unemployment rate lies in the Spanish economic model, based on tourism and construction, though the latter to a much lesser extent. Part of the problem of the high unemployment rate lies in the Spanish economic model, based on tourism and construction, though the latter to a much lesser extent.

The Spanish economy has recovered from a deep crisis and is growing at more than 3% for the third year running, but the unemployment rate remains stubbornly high at 17.2%, though well down on the peak of 27.1% in 2013.

Spain’s traditionally high jobless rate dropped to 8% in 2007 at the height of its boom, a level regarded as steep in other developed countries such as the US and UK. The recession that followed the bursting of a massive property bubble pushed the rate to 27% in 2013. Thanks to an economy growing at more than 3% for the third consecutive year (the pre-crisis GDP was not recovered in real terms until the second quarter of this year), the rate is down to 17%, analyst William Chislett commented for Eurasiareview.

Some 1.5 million more jobs are needed to regain the pre-crisis employment level. The government’s 2012 labor market reforms have made the firing end more flexible and lowered the GDP growth threshold for job creation. But most new jobs are on temporary not permanent contracts, and there is still a gulf between outsiders and insiders.

Part of the problem of the high unemployment rate lies in the Spanish economic model, based on tourism (a seasonal industry) and construction, though the latter to a much lesser extent.

The education system is also at fault: at one end, the early school leaving rate for 18-24 year-olds is still high at 22.7% (36.7% in 2006) and at the other end more than two-thirds of graduates say they are overqualified for the jobs they find.

Worrying Factor

There are several reasons for the high unemployment rate, which to a small extent is due to the statistical effect produced by the numerator (the number of jobless) remaining high while the denominator (the size of the labor force) has declined, as a result of emigration abroad since the crisis by native and naturalized Spaniards and immigrants returning to their country of origin.

The most worrying factor, particularly during the boom, was the large number of workers with low levels of education and hence a lack of basic skills, who left school in 2006 at 16 to work on building sites or in tourism. There was a correlation between the real-estate boom and the early school-leaving rate –the more houses built, the higher the rate. In 2006 the number of housing starts was a staggering 856,561 and the early school-leaving rate for 18-24 year-olds was 36.7%. By 2014, with the economy barely out of recession, the respective numbers were 34,873 and 25.6%.

With wages for unskilled work rising faster than those for skilled work, many young people, particularly males, concluded that education did not pay. These low-skilled jobs in an economy excessively based on a labor-intensive but unsustainable construction sector were destroyed as soon as the economy ground to a halt. The number of construction jobs plummeted from 2.70 million in 2007 to just under one million in 2014.

The collapse of the construction sector also had a big knock-on effect on related industries, such as doors and windows, not to mention domestic appliances. Many of those who lost construction jobs were on temporary contracts as they were cheaper to sack than those on permanent contracts. These poorly qualified young adults formed a ‘lost generation’.

More Job Creation

It is difficult to gauge exactly how much of the job creation since 2012 is due to the reforms and how much to the recovery in the economy in the last few years. Some 3.8 million jobs have been lost since 2008 but only around half have been recovered.

Luis de Guindos, the economy minister, says that not until 1.5 million more jobs are created, and with it Spain returns to the 20.7 million jobholders it had in 2007, can the country said to have really come out of its crisis.

International organizations such as the IMF and the OECD have made much of Spain’s growth in the last three years, one of the strongest in the EU, which has been quicker and faster than expected, but it should be borne in mind that the pre-crisis GDP was not regained in real terms until the second quarter of this year.

 

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