When Spain’s economy sailed on buoyancy, just at its highest, unemployment rate stood at 9%. The country was considered to achieve full employment and more surprisingly, able to absorb six million immigrants in its labour market. These figures can explain the historical record high of Spanish jobless people, which reached 26.03% at 4T13, but not deep reasons behind of cultural, social and even anthropological nature. Anyway, the European Commission has recently estimated that what they technically call non-accelerating wage rate of unemployment (NAWRU in its English initials), or in more simple words, natural rate of unemployment, grew from 10.9% in 2006 to 23.2% last year. What is worse, they expect this ratio to continue expanding to a structural unemployment rate of 26.6% by 2015.
This EC’s estimation can impact very significantly on their calculations over Spain’s potential growth. According to the European executive, Spanish economy average of potential growth in the period 2009-2013 has performed by -0.5% on a year- on -year basis and will reach -1.2% for next two years. “This is as asburd as saying that Spain is already growing over potencial, or is only capable of increasing GDP with negative rates, or all unemployment is structural,” director of Global Equities at JP Morgan Hugo Anaya has commented in a personal note.
That some sort of “apocalyptic view” over Spain’s can distort the real situation of the country’s economy. “ According to those figures, GDP’s “output gap” (differential between current and natural growth rate would be -0.7% by 2015,” Anaya explains.
In the expert’s opinion “Commission’s econometric model might have forgotten to consider some common sense adjustments.” They should study in greater depth some factors affecting Spain’s labour market: participation rate, short-term unemployed and vacancy rate.
As reported by Eurostat, Spain has 34.6 million working age population, of which 16.8 have a part or full time job, and 5.9 million unemployed. Summing both and taking into account working age population, participation rate reaches 65.6%. The “mistery” about these figures is that they have maintained stable since 2008 after two recessions (firstly from 2008 to 2009, and second from 2011-13). If structural unemployment increases, participation rate usually decreases because desperate or discouraged people stop looking for a job. “ It may have to do with housewives who enter labour market ou of necccesity and much with las years inmigration. Although it is also truth that part-time jobs have increased since 2008 by 800, 000, which means 3.5% of labour force,” JP Morgan’s expert says.
As regards short-term unemployed (less than a year), the rate currently stands at 13.1% , approximately half of Spain’s jobless population, and has not changed significantly since year 2009. The amount of people with temporary contracts is high and part of them are short-term because they are between one temporay contract and another. “It is not very reasonable assuming that short-term natural rate of unemployed in Spain reaches 10.2% as said by EC since it also means to assume all short-term are structural unemployment.”
Another relevant point worthwhile to make a nuance is the vacancy rate. Before 200-2013 ‘ recession came, vacant jobs in Spanish labour market were already a few. The “vacancy rate” cannot fall negative. “A company can say how many vacant position they have but never to say they are going to dismiss people, and this has also much to do with high EC’s calculations on structural unemployment.”
Finally other facts such as 20-25% of black economy, which is a much more complex problem for Spanish ailing market, or illegal workers that makes more than 1 million should be take into account by the EC when calculating structural unemployment in Spain.
Why did not take the European executive to include such adjustments in their estimations? Maybe to force Spanish government towards more austerity? To calm down deflation fears? “Economists at the EC are institutional officials, they just make numbers with no interpretation as well as political leaders do afterwards, when Publishing these figures”, Hugo Anaya at JP Morgan finally concludes.