Tag Archives: unemployment

Spain’s Economic Panacea (or not)

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Unsurprisingly, the talks between the government, business and trade unions ended early last Thursday morning without an agreement about labour market reform. Instead, Zapatero is going to issue it by decree.

For months now, murmurs of cutting the cost of firing people has been on the agenda of many newspapers and the murmurs swelled to a huge clamour during those negotiations. Making it cheaper to fire people is the great panacea for Spain’s economic problems now that the deficit is being tackled by government cost-cutting. Or so it would seem. Such a measure defies all sensible logic. Nearly everyone agrees that Spain’s main economic problem is the astronomical unemployment rate, which is at double the EU average, and that it is going to take a long time to create jobs for those 4 million people. How is making it cheaper to fire people going to help? If you look at how the unemployment has risen during the crisis, it becomes clear that the cost of firing people has not been a problem for many Spanish businesses.

The problem for many young people is that they struggle to get more than a temporary contract, unless they sit the examinations for a post in the public administration. They drift from job to job without much hope for their long term future and this undoubtedly fuels the other spectre which haunts the Spanish economy: productivity. If you’re given a temporary contract for a few months and not much hope of being rewarded for your work (this goes for the graduate contracts too –it’s easier for the businesses to continuously search for fresh meat than offer someone a long term contract), are you really going to be the most productive worker? Unfortunately Spanish businesses seem to think that precarious, temporary job contracts are better than offering someone a long term deal. It lines their pockets in the short term, but is detrimental to their long term growth.

So instead of talking about cheapening the process of firing people, let’s talk about making it easier to contract people, and penalising businesses for their overuse of temporary contracts (which the business representatives rejected during negotiations.) We can only wait and see whether this will be written into the decree on labour reform.

For more about young people and the economy, click here.

The Economy II: The ‘Thousandamonthers’

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One of the recent media phenomena in Spain has been the extension of the idea of the ‘mileurista’, or ‘thousandamonther’, someone whose monthly income struggles to breach €1000. The term has become a byword for long term employment insecurity, lack of prospects and advancement and, perhaps most crucially, well-qualified graduates in their twenties and thirties who have a job which is well beneath their actual skills and capabilities. The thousandamonther lives at home until he or she is in their thirties and can finally move out, or else moves abroad to find work in line with their qualifications.

This phenomenon is not a minor issue. According to Europa Press, nearly sixty per cent of salaried workers in Spain fit into this category. Obviously it is a huge problem for Spain and young people, who are beginning to feel that going to university will not guarantee them a good job. Currently, you either do the civil service exams (which goes for most public sector posts, including teaching) which offer a relatively well-paid job for life with protection virtually unheard of in the private sector, or you’re stuck as a thousandamonther for a least the foreseeable future: an engineer fluent in German working in Zara, for instance. Some escape abroad and, upon finding better working conditions, encourage others to follow them, which is also a depressing problem for Spain, but a problem which is never highlighted in the press. With so much focussed on immigration, nobody seems to note that Spain’s long tradition of being a country of emigration continues but in a new and worrying way. Rather than those who would leave at the beginning of the twentieth century to make their money in America and return to invest it in Spain (like how El Corte Inglés started) or those workers who left during the dictatorship for economic or political reasons, it is the well-qualified graduates who are leaving, a problem denominated ‘brain drain’ and which is usually associated with developing countries. It is these minds that Spain needs to move out of the recession and become an innovative and globally competitive country.

Another interesting dimension of the ‘thousandamonther’ phenomenon that merits further discussion is the culture of staying at home until you’re thirty. Personally, I am a ‘thousandamonther’ and if I lived at home with my parents, I would have a large disposable income. In other words, the figure of €1000 is an interesting one. It makes it difficult for a person to move out on their own into accommodation, yet at the same time they have a relatively large amount of money to spend each month. And in the modern world of consumerism, globalisation and advertising, this money is spent. Thus, a thousandamonther can experience a relatively good standard of living whilst he or she lives at home (for example multiple foreign holidays due to the explosion of cheap flights) but this is intrinsically linked to living at home with the resulting lack of independence and depressingly, at the same time, the €1000 barrier means that once the person leaves home, it will be difficult for them to maintain such a standard of living. €1000 means more than just a low wage, it means dependence on the previous generations.

Let’s move on to a slightly different but nevertheless closely related issue. Why is there so much job insecurity? Firing someone in Spain who has an indefinite contract is not cheap, so the usual practise nowadays is the use of temporary contracts, including the graduate contracts, which mean that graduates can be employed at 60-75% of the price of a ‘normal’ person for the same job. This is great for the top dogs and fat cats at the top of the pile, but a disaster for everyone else. There are complaints about the lack of productivity in Spain; perhaps if businesses were encouraged to hold onto their staff for longer, expertise would grow and the whole economy would benefit. Instead, people drift from temporary contract to temporary contract, hoping for the perfect job which will give them long term stability and security, as well as the ‘nómina’, the regular salary paid directly into a bank account, essential for buying a house and even opening certain basic bank accounts. This is why the dream of so many people is to work for the state.

The Spanish economy suffers from many problems, of which the ‘thousandamonther’ issue and the contracts are just two. With the rate of unemployment running at nearly 20%, posts need to be created as fast as possible. But that should not mean the reduction of workers’ rights again. Commentators and politicians recall those heady early Aznar years during which unemployment dropped sharply. They would do well to also remember that in that period the relative acquisition power of the Spanish worker dropped whilst temporary contracts increased. It was a myth of development, propelled by a property bubble which only benefited a few, whereas the reform is required now has to address the needs of many: the four million unemployed and the 25% of employed, but who remain in temporary employment.

The Economy I: Bricks and Golden Eggs

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Where better place to start than with construction? Bricks and mortar have been the driving force of the Spanish economy with the skyline of every town and city broken by the skeletal sight of several cranes. Construction has produced a huge amount of wealth for Spain, for local government and of course for the developers and speculators. A wealth generator yes, but personally I believe it has led to a myth of economic development. The economy hasn’t developed in a wider sense and the idea that construction could keep on pushing the country forwards forever was always going to be impossible. Of course it’s very easy to say that now, but it was clear before the start of the recession that it was an unsustainable policy. Understandably the banks, politicians and developers kept working the golden goose until it collapsed. Why bother changing something that works well for them?

There are a million people in construction without work because of the recession. 350,000 new posts will be created the new project for the renovation of old buildings. This will be encouraged by reducing VAT for these projects, reducing taxes and costs and increasing particular loans. Attractive incentives, but who is actually going to fund these works? Is it really profitable for the developers to realise this kind of labour? Does this mean rehabilitating empty buildings to sell on? To whom? Or if they are already inhabited, will the occupants want to pay? What about the rest of the people?

It seems that all of the political parties are waiting for construction to pick up again. It won’t work. It’s an economic model that is fundamentally unsustainable in a country that has a million unsold and unoccupied flats. Spain is in an awkward position as this is affecting everyone: there are a million unemployed in this sector and many people from the middle class who thought they could make a fast buck buying and renting/selling a second property. Now that the bubble’s burst, they’ve got problems: they want to sell but no one wants (or can) buy. Or if they want to buy, the price is inflated because the owners need to recoup as much money as possible. Prices are high compared to salaries and there are too many flats –what is the point in building more? The younger generations are being held to ransom by the speculators. Add to this the fact that many homes in the south were being bought by foreigners. These foreigners have enough problems in their own countries with unemployment etc and won’t be looking to buy a second home soon. Similarly, the British expats are seeing their pensions steadily fall in value because of the euro and consequently life is getting more and more expensive, with the result that many want to return home.

What is needed is a fundamental shift in the focus of the economy. It will be painful and hurt a great number of people, but I feel it is necessary in order to give work to the 1,000,000 unemployed construction workers, get the economy moving again and create a sustainable economic model. This requires investment, not cuts. The biggest problem of the economy is unemployment and the idea of cutting public spending is an absolute no-brainer. What is required is targeted and controlled investment.

Construction has led to a myth of development. Many people have got rich with the construction boom, but that hasn’t developed the economy in any way. The people at the bottom continue to struggle along as best they can with astronomical mortgages. It has been a golden goose for some, but the eggs are no longer being laid. The problem is that the politicians, who for a long time have benefited from part of the construction contract egg, are not willing to shoot it.

The Anti-Recession Commission: ‘Come on people, let’s sort it out!’

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Today the cross-party Anti-Recession Commission meets for the first time in Madrid to sort out once and for all the problems that the Spanish economy is facing. To me it seems like a ‘Big Talk’ sketch from Mitchell and Webb: ‘Come on boffins, let’s sort it out now!’

I can only see two possible outcomes of this series of meetings (which will take up to two months, by which time how many people will be unemployed? Why hasn’t this been done before?) and here they are:

  1. Absolute disaster. The diametrically opposed parties find it impossible to come to any agreement about anything as they fail to reach consensus on cuts and how to generate employment. Another two months is lost and the economy continues to stagnate.
  2. A policy so-watered-down-it’s-transparent is published to a great fanfare. The PP have got their way in demolishing what the PSOE wanted to do whilst the PSOE can celebrate having at least reached a consensus on something. Two months have been lost and it’s unlikely the policies will work anyway.

Why won’t these potential policies work? Because it isn’t the PP’s interests to cooperate and rebuild the Spanish economy. They’re doing fabulously well (at least in their own eyes) sitting back and pointing out what is going wrong. The longer the recovery takes, the better for the conservatives. And then of course there’s the other reason why the policies won’t work: they won’t sort out the real structural problems with the economy because all the parties are afraid to do it (and because they benefit from this economic model.) That takes a great deal more explaining, and I’ll try to do so in the coming weeks.

The cross-party Anti-Recession Commission? Doomed (or perhaps programmed) to fail. I do hope I’m wrong.