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Spain's Unemployment, WAGES and Productivity in Context

Why Is Spain's Unemployment So High?

Current levels of unemployment

Harmonised unemployment in Spain has declined from 26.3% as at Feb-13 to 16.7% as at Sep-17. This is compared against Italy, the UK and Germany below. Its future decline to average levels is widely seen to depend on whether employment reforms are continued by the minority government.

OECD (2016), Harmonised unemployment rate (HUR) (indicator). doi: 10.1787/52570002-en

Harmonised unemployment rates define the unemployed as people of working age who are without work, are available for work, and have taken specific steps to find work. This indicator is measured in numbers of unemployed people as a percentage of the labour force and it is seasonally adjusted. The labour force is defined as the total number of unemployed people plus those in civilian employment.

Structural factors

• Skills and education: Economists say one key reason for Spain’s persistently poor job performance is the relatively large number of workers with low levels of education, and limited employable skills. For these workers, the property boom was a godsend, because it created huge demand for casual labour on building sites. When construction ground to a halt, millions of low-skilled jobs vanished, perhaps never to return.
• Unemployment benefits: Another key reason for Spain’s unemployment problem is that unemployed workers typically stay on the dole for longer than in other countries, not least because there is little pressure to look for new jobs straight away. It is culturally more acceptable to receive unemployment benefit in Spain, than for example, in the UK. 
• Jobs-for-life: In Spain, the predominant aspiration is to have a stable job in one fixed geographic location. Indeed, many jobs-for-life still prevail which limit the flow of workers through the ranks of an organisation and also reduces the capacity for innovation and organisational change. This has a particularly strong effect on youth unemployment.
• Low levels of skilled manufacturing jobs: Spain's economy has a lower bias towards manufacturing than other countries in Western Europe, and manufacturing is mainly focused in the Basque Country and in Catalonia, both in the north of the country.

Cyclical factors

• Seasonal tourism: A well known phenomenon is the seasonal nature of jobs in the Spanish tourism industry.
• Temporary contracts: Spanish employers rely heavily on temporary workers, who often find themselves unemployed as they wait for a new contract. This high degree of fluctuation in the labour market translates into higher average unemployment

Frictional factors

• The high levels of structural unemployment have compound frictional effects on the labour market. There are an exorbitant number of applications received for each vacancy which tend to have the following consequences:
  1. Employers may not be able filter out the candidate they would judge to be the best match for the vacancy.
  2. Candidates and employers rely increasingly on varying degrees of personal recommendations including the somewhat notorious "enchufe" (i.e. large scale nepotism), which may otherwise disadvantage potentially more suitable candidates. As described by Bentolila, Dolado et al (2012), this has created an established "insider-outsider" labour market in Spain,

Source: Financial Times, IESE

Beveridge unemployment curve for, EU countries, as an indicator of job-matching and labour market efficiency:

Wage DEFLATioN

Average wages have experienced deflation in Spain since 2009 which is seen to be a key driver of of the macro-economic recovery in Spain.

Source: OECD (2016), Average wages (indicator). doi: 10.1787/cc3e1387-en

Average wages are obtained by dividing the national-accounts-based total wage bill by the average number of employees in the total economy, which is then multiplied by the ratio of the average usual weekly hours per full-time employee to the average usually weekly hours for all employees. This indicator is measured in USD constant prices using 2012 base year and Purchasing Power Parities (PPPs) for private consumption of the same year

Productivity

Measured in GDP per hour worked, Spain's productivity was on par with the UK in 2014.

Source: OECD (2017), GDP growth per hour worked (indicator). doi: 10.1787/1439e590-en

Labour input is defined as total hours worked of all persons engaged in production. Labour productivity only partially reflects the productivity of labour in terms of the personal capacities of workers or the intensity of their effort.  This indicator is measured in USD (constant prices 2010 and PPPs) and indices.