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Thursday, January 23, 2014

Summer is over as Spain adapts to life outside its bank bailout programme

Spain's first day outside its EU-IMF bank bailout programme started with the publication of the new data on unemployment from the country's national statistics institute (INE). As we predicted on this blog last year (see here and here), the figures after the end of the summer - when a lot more seasonal jobs are on offer - look less encouraging than in the previous two quarters.

Let's start with the headline figures. In the last quarter of 2013, the general unemployment rate increased slightly from the previous quarter - from 25.98% to 26.03%. This means that, at the end of last year, 5,896,300 people in Spain were out of work.

It's worth looking at the figures a bit more in detail:
  • The number of unemployed people went down by 8,400 in the fourth quarter of 2013, and by 69,000 in the year as a whole. This is positive, but has to be weighed against a significant fall in the economically active population - those working or actively looking for a job.
  • Spain's active population decreased by 73,400 in the last quarter of 2013 alone, and by 267,900 in the year as a whole. As a result, the active population is now 59.43% of the total - the lowest level since the first quarter of 2008. The upshot of this is that, while the number of unemployed people may fall, a lot are simply switching to being economically inactive.
  • The number of employed people went down, both in the fourth quarter of 2013 (-65,000 from Q3) and in the year as a whole (-198,900). However, it has to be said that the decline is less sharp than in the previous years.
  • On a more positive note, the seasonally adjusted employment rate went up slightly (0.29%) in the fourth quarter of 2013, and it's the first time it happens since the first quarter of 2008. Similarly, the seasonally adjusted unemployment rate decreased by 1.22% from Q3. Again, though, this has to be put into perspective - notably with the reduction in the economically active population.
  • One of the most concerning points comes with the level of long-term unemployment, which towards the end of last year reached new record highs. Over 13% of the active population have now been unemployed for twelve months or more (click on the graph below to enlarge). The knock-on effects of this are significant. It is well proven that the longer people are unemployed for, the harder it is for them to find work. It also diminishes their skill level and hampers future earning potential. This is worsened by the fact that, in Spain, many of these are likely to be younger workers.

The latest unemployment figures show that, despite some encouraging signals, it will still take time before Spanish citizens feel the recovery has started. It also means the Spanish government may consider a second round of reforms - perhaps more targeted at closing the gap between the education system and the needs of the labour market.   


Jesper said...

I find conclusions such as these both sad and funny:
"second round of reforms - perhaps more targeted at closing the gap between the education system and the needs of the labour market."

The conclusion is about as meaningful as it is vague.
My personal experience has been that many educated leave Spain to better opportunities elsewhere. They've left because salaries have been better elsewhere and also because the opportunities have been too few in Spain.

Maybe my personal experience and the stories that are in newspapers about the (braindrain) educated leaving are not representative of what is happening in Spain. Any studies confirming the existence of the supposed gap?

Rik said...

Hard to see what educated leaving the country has to do with the gap between education and work. 2 more or less seperate issues.

-Spain technical level of students is lower than up North. If I am not mistaken one of the Belgian universities compared its temporary exchange students with locals and probably mainly Dutch.
One of the mistakes the EU makes a university education is simply not always a university education.
If you go further away problems get even bigger. Arab universities were 40% basically buy their grade. No proper study material in several areas. Students first have to learn the completely strange for them language English before the study effectively can start. Stuff like that. In this respect the fact that 25% of Rumenian immigrants are graduates hardly bolsters confidence.
-Spain has not a good reputation in studies that usually give you a job (technology). Basically the same problem as women in a lot of countries.
-Language skills. Spain has improved but it is still rubbish compared to basically everything up North. Several studues on that btw.
-Spaniards travel badly. Unlike say Portuguese who usually fit in much faster. Not strictly dealing with the gap here.
-Anyway the gap is simply growing the lower the age. In the US where it is properly looked at, skillslevels are dropping now. Boomers out, new generation in, while the new generation have several times more often a degree.
Employers see more and more starters basically unfit for a paid start.

Just face it a lot of the young people in Europe are of the entitlement generation and not fit to take the bull by the horns.
A lot emigrate but a lot also stays at home and goes down the drain (emigrants usually donot show up in stats). These are people that have to compete on the worldmarket with Chinese and such. And they are simply in large proportions not fit for purpose, especially seen the on a worldscale still pretty high salary levels, high jobprotection, etc.

Jesper said...


there is no indication that the needs of employers in Spain aren't being met. The labour market has observable variables, one of them is price (wage for workers):
"If firms genuinely could not find the people they needed, they would have either raised wages to the point that the jobs became highly attractive or they would have invested significantly in training. Neither has happened."

Wages not going up -> No shortage of skilled workers.
Skilled workers leaving -> Wages not competitive.

I'm not familiar with the Spanish education system, maybe there is a need to reform it but I've not yet encountered anything to support that claim.

Jim Kemeny said...

Of course, it is possible to be in favour of the EU without also being in favour of the Euro (€). The design of the euro is fundamentally flawed. All of Club Med, many ex-Warsaw Pact countries and even non-Warsaw Pact countries like Slovenia are in sovereign debt crisis, not to mention the UK, not even in the € zone.

Norman Tebbit in his Telegraph blog made the point some years ago that the € should have been limited to North European countries to minimise the risk of sovereign debt-crisis.

Rik said...


The needs of employers in Spain are clearly not met. One of the major signs is that hardly any new investor producing for the whole EU market goes to Spain.
Some do but way too few. Simply bad buy for your buck.
Roughly the same as when say China would raise its minimum wage to say 3000 USD per month. Workers are pefectly able to do the job, only nobody will hire them.

Spain has imho still a backload of unnecessary workers as well. Because of the labour protection mainly. Employers rather use the capacity hidden there than hire new ones. Another clear indication that there is something terribly wrong overthere. Go to a say Sweden with 25% unemployment and you can get top class workers.

But at the end of the ride. Spain's workers are still a bad buy for your buck. Still too expensive for exportindustries. And still overall keeping costlevels so high that people rather buy ( as a nett of course) foreign stuff iso Spanish produced.
By now this mechanisnm should have been working as it clearly isnot there are clearly other problems as well. One will be the costlevel overall, an other one
red tape, again another a bunch of morons as governemtn (they often make Manuel look like an intellectual), but relative costs of workers (including those of labour protection) simply is another reason.
If you have this level of unemployment on top of that as an employer you can cherrypick excellent workers in any developed country. That simply indicates that the Spanish workforce is not fit fot purpose.
Or better way too expensive.
The most pleasant way is adjusting skill levels and cut labourprotection in that respect. The only other alternative is a further drop in wages and standard of living.

Anyway even before the crisis most employers I know were hardly positive about the average level of the Spanish graduate compared to say an average Belgian or a Swedish.
An university degree is not a university (well it not necessarily is).
Why does an English engineer works as an engineer in the UK?
Similar for say a Dutch or a German one.
But why is a Polish engineer often a plumber?
And why will a Bulgarian one often be a waiter or a cleaner?

But any wages are higher up North. You can get millions in a week if you open the borders.
What imho is happening is that both the brightest and the best and the most adventureous move.
You cannot only look at price, if that was the issue half the country would probably leave. And yes emigration will be very bad for the country in the long run.
But you donot get high unemployment from emigration (people leave the stats). So seen the stats a lot stay in Spain (by far the most) and apparently they are unattractive for employers (and increasingly more unattractive the younger they get).

About the hiring the issue is that employers simply donot hire enough. Overall they are not hiring (but are effectively still firing, see increasing unemployment levels).

Your point would be accurate if there was 5% unemployment but not with the current levels.

I fully agree that people leaving is a problem as as said it will not be the worst that leave. But that is another problem of high levels of unemployment. Probably certainly in the long run an even more serious one. And at the end of the day with unemployment closing in on 30% (and 60% for the younger)there are other issues and one of these is skills vs labourmarketdemands and worldmarket wagescosts.

Rik said...

Related and interesting.
It appears that Spanish workers are increasingly doing overtime. Zerohedge has an item on that today.
But most of the hours are not paid.

Bit hard to see how to interpret that. Look forward to your ideas.

My initial idea is that there is still some cleaning up to be done. (Wages still too high and/or workers scared to lose their job).
-Donot think it has much to do with lack of skilled labour (otherwise they would imho have been paid).

But is is an unusual one.

Jesper said...

Well Rik, to start with you might need to look at the market as composed of market-participants. There'll be buyers and there'll be sellers.

Buyers say that the market need low prices but you should be aware that they'll say and do whatever they can to get the prices reduced.
Sellers say that the market need high prices but you should be aware that they'll say and do whatever they can to get the prices increased.

If you only listen to one side then you'll not even get half the story.

The buyers in the labour market are employers.
The sellers in the labour market are workers.

You've shown remarkable trust for one side by not even bothering to investigate further than listening to their biased claim.

The outcome in the market is that the ones with the strongest negotiating power will shift the price to their advantage. The other side (employer or workers) can then choose between leaving the country or accepting the price that has been given.

Some work overtime for free in Spain. I'd say that free is about as low price you can get so what does that say about who's got the strongest negotiating position?

Overly strong and irresponsible unions might destroy an economy but many unthinking people do not realise that an overly strong and irresponsible corporate sector is as likely to destroy an economy.

Liberals (most seem to be unthinking yet they claim to be intellectuals?) seem intent to kill off the economy by giving all power to corporations thus leading to the killing off of demand.

Rik said...

Labourmarkets are sticky and not only on price.
Jobprotection like in Spain, keeps eg people employed that for pure economic reasons would have been fired.
Jobprotection also causes that people wait with hiring new staff until it is sure the indirect costs of jobprotection are worth it. Simply a considerable delaying factor.

This process looks simply not finalished/bottomed out yet in Spain.
Still people on the payroll for not pure economic reasons and employers waiting with hiring (the few that have room for new employees).

Moving abroad is another ballgame.
Wages always have been higher up North, but few Spaniards have moved anyway. Main reason that now it is happening imho that there are hardly any jobs/vacancies at all.

The reason btw that the corporate sector is effectively pushing out talent is imho that the Labourmarket in Spain is simply completely dysfunctional.
It takes way too long to bottom out and get to a new start. Plus it is too risky to hire with massive jobprotection in place.
These are both government (legal and political) issues. Cuts are going much too slow as they are a hard sell politically. And the same with Labour laws change, again simply a hard sell.

Business just reacts on that. And with more than half the Spainish cies in trouble the reaction will be short term. This was easy to predict.
The average standards of workers in Spain might be substandard from a Northern pov, but like everywhere the best will be in front of the emigrationwave. And the best are clearly good enough.

So imho the cause was predictable and purely caused by slow government reaction. Anyway hard to see even in a new relatively low compared to the North wage equilibrium there would not have been an increased stimulus for emigration. Wages had to come down, which means simply an extra stimulus compared to before. Add high taxes with poor government services and limited growth anyway. There is a massive push for the best and nost adventurous to move (plus they are very likley also in the optimal age group (recently entered the labourmarket).

Anyway you will not get the business sector behave any better (re forcing people out of the country). Increase wages (legally that is) and even fewer people than now will be hired.