Of the many bits of bad economic news Spain has received this past year, including finding deficits were higher than expected and growth rates much lower, perhaps no other figure has proven as weighty and daunting as the country’s unemployment rate. Reports released at the end of January saw that number rise to 22.9 percent adding another dismal headline to the Rajoy government’s first official month. Nearly 5.3 million out of work with declines in available positions across the board, from services to the country’s still collapsing construction sector.
Capturing the dour outlook of the country’s current situation, The Atlantic’s Derek Thompson sadly summarized the statistics facing the new prime minister, noting “The overall unemployment rate is in the mid-20s, industrial production and services activity have both cratered, construction indicators like cement consumption have been devastated after doubling between 1998 and 2007, retail is in a free fall, and export growth (most of which go to Europe) is falling is slowing.”
Amid all the other sour news facing the new government and their recovery efforts, 22.9 percent stood out, dwarfing the rates of fellow EU member states, even those thought to be perilously close to very dark territory. Among those countries most troubling in the eyes of Brussels, Berlin and the global markets, Italy registered 8.9 percent, Portugal 13.6 percent and even Greece – so worrying to so many, managed to come in under Spain with 19 percent.
Still, while weakened by slow to stagnant growth, Spain has remained an economic force in Southern Europe, especially when compared to damaged economies in Greece and Portugal. So, the exploding rate of job-searchers does not make as much sense when viewed in the larger context of the Euro crisis. Sure things are bad from Barcelona to Cadiz, but does 22.9 percent really reflect the state of the Spanish job market? To be clear, the unemployment number broadcast to the world is undeniably important to how the country’s current economic challenges are perceived by outside forces. Indeed, the consequences are far-reaching, chipping away at the country’s fragile confidence and spreading the blame across the economy, including applying higher and higher borrowing rates to banks, no matter how sound an institution might actually be. However, upon closer inspection the number that looms so heavily over the country’s ability to rebound does not really tell the whole story.
First, Spain’s traditional approach to reporting work on a local and national level go a long way to explaining why the country’s numbers remain so high in relation to the rest of Europe, even in the best of times. After rebounding from a 1993 jobless high of 24.5 percent, Spain was driven by a booming construction sector and cheap borrowing opportunities brought about by further integration into the Euro economy. Building on that fresh access to capital and real estate development that dwarfed efforts in Italy and Portugal, Spain emerged as force of growth in Europe, though even then, as the economy exploded, unemployment remained high, bottoming out at a 2006 low of 8.1 percent.
The reason for this inconsistency of economic performance and fiscal statistics comes down to two factors as far as economists are concerned. First, Spain has historically had a sizable under-the-table market of unreported or part time workers that are not counted as a part of the country’s workforce. In an OECD study conducted in 2006 Francesca Froy and Sylvain Giguere found that Spain’s unregistered job market accounted for almost 22 percent of the country’s GDP in 2002. While recent policies aimed at bringing more of these positions into the light have been introduced, it’s difficult to imagine that they have been successful enough to erase any impact on the country’s jobless numbers.
More recently, others have pointed to the country’s conservative tradition of over reporting unemployment numbers as a way to explain its high numbers in comparison to Greece or Portugal. Vanessa Rossi, an economist at London’s Chatham House think tank, told the Voice of America, “The Spanish unemployment rate might actually be slightly lower than these figures,” adding “That’s quite in contrast to many other countries that have the opposite problem – they under-report unemployment.”
Second, and perhaps more importantly, the 22.9 figure does little to truly show who is most affected by Spanish unemployment. For that, the more important number is 48.6, representing the number of jobless between the ages of 16 and 24. To be sure, this is the number that plays most heavily into the country’s ability to not only avoid a second recession, but also ensure long-term productivity and competitiveness.
Despite being the country’s most educated workforce in the nation’s history, Spain’s young workers have found themselves locked out of a labor market that strongly favors older workers thanks to the high cost of firing employees. Overly equipped for the few jobs available or under-employed in positions with little pay, many are shifting their attention towards Northern Europe and the United States. While Spain may have experienced this sort of emigration during past economic slow-downs, they have never risked the type of brain-drain of their best and brightest as they do now.
Again, this is not an attempt to downplay the importance of this number. No matter how its broken down or explained, the effect is the same, leaving investors and regional regulators with waning confidence in the ability of Spain to grow out of the hole it is currently in. Instead, this closer look at Spain’s job numbers is meant to provide more focus on how solutions can and should be applied by the new government, implementing targeted approaches rather than policies aimed at the population as a whole.