Spain has had one of the highest persistent rates of unemployment in the EU for several years. However, since the credit crunch and housing bubble burst in 2008, unemployment has spiked to over 4.9 million. [1. BBC Link]
The problem is more acute amongst young workers. More than 45% of young Spanish are out of work. This is the highest rate in the EU. Unsurprisingly this rate of unemployment has started to spill over into demonstrations at their seemingly hopeless plight.
The cause of this unemployment can be traced to various factors. Firstly on the demand side, the Spanish economy is struggling to deal with a strong exchange rate. Rising costs in the Spanish economy has made Spanish firms relatively uncompetitive, but they haven’t been able to rely on a devaluation to restore competitiveness.
Secondly, the Spanish economy was badly affected by the property boom and bust. Although Spain didn’t get into bad mortgage loan, there was a huge boom in property building. Now the market has turned, there is a large surplus of unsold property, depressing prices, the construction industry and household spending. The construction industry was once a major employer of young workers, but now jobs are scarce.
However, although demand side factors are behind the recent rise in unemployment, it doesn’t explain the persistent structural unemployment and very high rates of youth unemployment.
Ironically one factor causing youth unemployment is strong labour protection for existing workers. It means workers with jobs have good contracts with strong safeguards against redundancy. This makes it difficult to fire older more established workers. Firms often employ young workers on very different contracts of short term, and no guarantees of job protection. When hard times come, it is no surprise that it is the young on flexible contracts who are the first to go. It is a classic example of an insider / outsider labour market. But, it will be difficult to change.
Aside from labour market protection, there are concerns over the quality and validity of education and vocational training within Spain. But, even more concerning is the low expectations many young workers are developing. Unemployment amongst the young is so common, that it is almost the expectation to be without work. However, the protestors currenly in Madrid, Barcelona and other cities dubbed “los indignados” [the indignant] are at last starting to make their voices heard.