This is what the Spanish labour market is like today: Six questions and answers

Spanish labour marketMetro station of 'Bank of Spain' with the building under construction in the background.

via The Conversation | Whether the Spanish economy is capable of returning to the levels of unemployment at the peak of the housing bubble between 2006 and 2007 is the key labour question and the principal concern of political economy.

On the point of completing a fifth consecutive year of economic growth following the worst crisis since the seventies, Spain has the third highest level of unemployment in the OECD and the second highest in the Eurozone, behind only Greece: 15.28% of the active population at the close of the second quarter of this year.

This high rate of unemployment is not just the result of the crisis. Structurally or persisitently through time, Spain systematically has a higher level of unemployment than its European partners. In the momento of máximum growth of the economy in 2007 (second quarter), unemployment hit its lowest level in democract at 7.9%. Given that, and taking into account the deterioration suffered by Spain´s productive structure with the crisis in recent years, the level of structural unemployment is around 10% and the maximum working population we can achieve around 20 million.

As these are necessary objectives, it is convenient to revisit what is the current situation of our labour market like beyond the numbers, what are the causes and consequences of its principle movements and what can we expect in the next two years which could remain of economic growth before entering the next recession.

1. Are we better off now than five years ago?

If we stick with the figures the answer is affirmative, given that since the thirs quarter of 2013, which the first positive quarter for our economy, we have been increasing the rhythm of job creation every year until reaching an average of 500,000 jobs per year. Thus, in half a decade, Spain has returned to the head of job creation in Europe with more than two and half million more affiliated with Social Security, taking the latest data for the month of August.

However, if we look at other quantitative indicators – the calculation of total hours worked, overtime, salaries, among others – and qualitative indicators, we see that the Spanish labour market has suffered a profound transformation which in many layers of the working population has not translated into real improvement, but rather has reinforced another of the endemic problems in our market, which is the duality between fixed and temporary contracts.

2. Duality is synonym for temporary?

We usually refer to temporary contracts, or in other words, the rotation of jobs and the lack of continuity in them, as the main blight in our labour market. But temporary contracts are no more than the consequence of a dual model with an ever greater separation between those with full time indefinite contracts and those who have a temporary contract or, even if it is indefinte, part time.

This new situation is creating not a few conflicts between the workers and their union representatives, given that the unions focus on the defense of workers with fixed contracts and not temporary workers, who have a lower level of union membership and who are more concerned with juggling varios jobs to let them live than claim labour rights as conceived a few years ago.

Although the unions argue that temporary contracts are a serious obstacle, they reject formulas like the “single contract” which would eliminate the duality and give the same rights and obligations to all workers. But that would be to prejudice the workers with fixed contracts and the current union leaders are not willing to do that.

3. What kind of employment is being created?

In general terms (with the due prudence when generalising about the economy), the major part of the employment created results from chopping up the old jobs from before the crisis. In other words, where before there was one person with a fixed contract, now there are between two and three with contracts they may be fixed but which are part time, and moreover with a labour cost which usually does not exceed that of the one worker and without reaching the same hours worked either (today 75,641 fewer hours are worked each week than in 2008, according to data from the National Institue of Statistics – INE).

This is the “rough sketch” in the principle sectors of the economy, but it is also necessary to note the creation of new employment in new high technology sectors which are slowly developing in Spain. In both parts, the companies which are the motor for job creation are the large ones, starting from 200 employees.

4. Which sectors create most employement and which continue to destroy employment?

According to the breakdown by sectors of the General Register of Social Security, the main creators of employment and the most labour intensive: the housing sector (especially construction), the automotive sector and the tourist sector. These three sectors account for 60% of job creation month after month, while the rest is shared out in activities where Spain is highly competitive, like the agro-alimentation industry, engineering services, consultancy and exports, not forgetting public employment.

On the other hand, there are still two sectors which continue to destroy employment: banking and the electricity sector. This is not a coincidence, because they are examples of the need to adjust both work forces and salaries.

5. What is the role of the self-employed?

The self-employed are being the great figure emerging after the crisis, having created a collective of more than 3 million people. It is, without doubt, the refuge that many workers have sought to be able to continue working with reduced fiscal pressure from Social Security quotas, which are the second highest in the OECD. In this process friction has also emerged, for example the case of the false self-employed, which should be understood as a shock of labour models.

6. ¿What is happening with salaries? Is the internal devaluation over?

Salaries have begun to rise more slowly and later than the recovery of employment. The increase is concentrated in the aforementioned sectors which are creating most employment (especially in multinationals and large companies), but remains stagnated or even falling in the rest of the economy. For example the fall of 15% between 2008 and 2016 in starting salaries for the young between 20 and 24 years, according to Spanish Statistical Office INE.

In the absence of significant improvements in productivity, salaries are unlikely to increase more strongly, given that over the medium and long term salaries cannot increase permanently by decree, but rather through a sustained improvement in the time of productivity per job.