Spanish unemployment is a beast that can be defeated

Spanish unemployment1

Staggering unemployment figures are too often described in Spain as a natural and unavoidable misfortune linked to a pronounced growth gap. No one contends that sluggish economic performance lies at the root of such a dismaying phenomenon. Yet such an attitude provides the perfect excuse to undertake no effort in addressing this devastating calamity.

Pretending nothing can be done to trim down a 26% pilfering of human resources, seems utterly preposterous. The more so when labour costs are so hugely penalised by taxes and social contributions.

Don’t blame the recession as the only source of this huge mismanagement when fiscal drag on salaries represents over 80% of overall receipts. As this massive weight falls on less than half of total national income, one can draw the obvious conclusion that working is subject to acute disincentives. A thorough fiscal reshuffling needs to be implemented to redress this shortcoming.

Ensuring more flexible labour market does indeed help to redress the current mismatch between manpower offer and demand. Labour reform stood as a must. But the way it was tailored, only has favoured massive lay-outs. If you provide a fast-track facility for firing linked to losses over the last year, it does exert the perverse effect of inducing firms to trim down their workforce while they are on the red. Why should you wait till recovery brings back profits, throttling away this easy-to-fire opportunity. No wonder the rate of unemployment has climbed to fresh records.

Meanwhile, flexibility in enterprise-level working conditions has only being paid lip-service. Most SME are subject to stringent sector-collective bargaining that stands as a major hurdle for enhanced productivity and growth. As labour conditions are imposed on a uniform basis, better performing firms are bound to follow the same pattern as those lagging behind. One of the crudest anti-competitive behaviours is thus enshrined much to the detriment of flexibility in labour market.

Unemployment runs so high that it invites to undertake a major review of the protection schemes in place. The prospect of living for a long run with such astounding figures points to the need to concentrate support on those in dire need of help. It makes little sense to provide a one-size-fits-all treatment to those in the dole, regardless of their own assets and economic capacity. Indemnities in particular should be fully taken into account, as they still represent a non-negligible buffer to make up for bad times. A better tailored social support network must be introduced to avoid poverty from mushrooming.

Job searching needs also to be enhanced. The current two-year unemployment benefit protection, with little provision of professional help for finding fresh opportunities, drives jobless desperately away from the labour market. No effective training is being offered to them for meeting the challenge. No systematic monitoring ensures unemployed are given support and guidance in looking for work. No wonder most people trapped in this appalling distress either fail to escape from it or get to the emergency exit at the very last moment.

It’s time vast reforms are introduced to improve both the labour market and the unemployment benefit system. Otherwise, those in utter misery will dangerously increase leading to social disintegration.

About the Author

JP Marin Arrese
Juan Pedro Marín Arrese is a Madrid-based economic analyst and observer. He regularly publishes articles in the Spanish leading financial newspaper 'Expansión'.

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