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Unemployment in Spain (The Economist)

Unemployment in Spain (The Economist)

During the decade until 2007 Spain was seen as enjoying an economic miracle. Now Spain is among the worst hit nations in Europe, with economist all over the world, not least in Spain itself, hitting hard at the government for its policies. World economic woes are certainly affecting Spain, but it is suffering more due to local matters. Several billion Euros have now been thrown by the government at the problem, but unemployment reached over 5 million, or virtually 23% by the end of 2011. It is expected to continue rising until 2013, when it might reach 25% of the working population. The new government has so far done little to get Spain back to work and offers no hope of a quick fix. We offer our view.

A couple of statistics: registered unemployment was 1,965,000 in June 2007, but 5,200,000 (or 22.85%) in December 2011. The 2007 figure had remained largely unchanged since 2000, despite the arrival of 5 million migrants in the period.

Background. Growth was high in Spain until 2007 from when General Franco allowed economic development in the 1960s. In particular, joining the EU was a major boost for the country, with EU structural funds allowing infrastructure to be brought up to -and in some cases overtake- that available in other EU lands. A later baby boom in Spain meant that there was a plentiful supply of strong young workers until the millennium and since then a major influx of immigrants kept the workforce vigorous. The combination of growing disposable incomes and a growing population has meant that construction has been a major force in overall growth for decades and in addition recent low interest rates, due to Euro membership, meant house prices could rise at apparently no extra cost to those buyers taking large mortgages.

In the 1970s Spanish families reckoned they ate 40% of their (single) income. Today the average younger family spends 80% on the mortgage, with two salaries needed to start balancing the books. The overall figure is 47%. Price warning shots had been made long before the US crisis, but economists claimed 'Spain is different', 'this time is different', etc.. Happily, perhaps in the long term, Spain is not now so different! Even with a still growing population, the number of people with no home, but a disposable income has fallen to almost zero, leaving tens of thousands of new flats, not to mention older housing on offer, with no one to buy.

Housing. There is a major over-supply of new housing. The last time a crisis of this kind occurred, in the early 1990s, prices did not fall, but simply stagnated for 4 years. This time prices have taken time to react, but now asking prices on the Costas and in many cities have fallen by up to 20%. More may be to come, followed by several years of stagnation. As elsewhere, economists had been warning of overheating/ overpricing in this area, but the lack of finance and loss of jobs have been the determining factors in the fall in demand for new (or second hand) homes. Besides, banks are now repossessing homes and are seeing high levels of default. Local government owned Cajas (Savings banks) in particular, have burnt through high levels of capitalisation to critical levels, with a number of them having to merge to continue business.

Unemployment. Many building workers, mostly foreigners, have lost their jobs. Job losses and temporary lay-offs have then begun to hit industry and services. Many, in fact, have come to the end of their six months of unemployment pay, leaving them with little social support except their extended families. Naturally, this hurts immigrants most and several offers have been made to allow these to return home with a lump sum or, in the case of Romanians, to collect unemployment pay in their home country. Since mid-2011 government has also been cutting jobs, or not replacing them even in critical areas like hospitals. This is now affecting more and more nationals, who are also joining the queues for food handouts at churches and other social associations, like the Red Cross.

Money measures. The socialist government's approach to the situation was at first to throw money at as many sectors as possible. Short term job creation schemes and cash for clunkers were seen, while also increasing the salaries of government employees in an attempt to keep them spending. But the surplus with which Spain went into the crisis rapidly became one of the worst deficits of any G20 country, while the economy has not responded and again was the only G20 country to remain in technical recession at the end of 2009. After coming out temporarily in 2010, the socialist government left office in a recessionary quarter again in December 2011. By that time they had cut pay again and also frozen pensions. The new conservative government has yet to announce any reforms which will put an end to the loss of jobs, while making yet more cuts to services and raising taxes.

Tourism It goes without saying that any crisis in Britain is going to have an effect on the Spanish tourist industry. The fall of the value of Sterling has indeed added to the UK crisis to prevent the British, who are Spain's largest market, from holidaying Spain as usual. At least the German market could somewhat resume in 2010. Perhaps some wealthier British, who might otherwise have gone to more exotic locations, chose to get their shot of annual sun in Spain.

How is the downturn affecting the Evangelicals? Firstly, many of those with the most tenuous jobs are Evangelicals and Muslims. Latin American, West African or Romanian Evangelicals and North African Muslims are employed widely in construction and many of the Spanish speaking women also work in services, such as waiters and chamber maids. The churches, some of which are completely Romanian, Latin or Nigerian, for example, are being especially hard hit as members lose their jobs. Some, indeed, are among the so-called 'paperless' people, with no ID card, social security or other safety net. They are hard hit from the day they are out. Others have time to recover on unemployment pay. But the income of the churches may also decline.

In addition, although perhaps of another grade of concern, the high Euro is hitting not only the support of Anglo-Saxon christian workers in Spain, whose home churches may be facing similar concerns. Also the new wave of Latin missionaries to Spain is finding their support is worth less every month.

For more information on immigration, see the News Theme on this topic.

Links and more

The government now has a specific English language site relating to the economy.

The Economist on the Zapatero reforms, 3rd Feb '11.

BBC on the private debt problem at the root of Spain's troubles (18 April '12)
BBC on 'Who's to blame' (18 May '12)
A BBC interview with 2 unemployed young people (24th Jan '11)

For the 'raw figures', see our Statistics page.

See this colourful video giving the Wall Street Journal's view on the crisis. (18 minutes.)

All the figures from The Daily Telegraph

Read The Economist on the problem with the employment laws (February 2010).
Here, The Economist reports on the law's changes (October 2010)
Check out Spanish debt levels with The Economist's global calculator.