Startups Fill Void Left by Spain’s 26% Unemployment Rate

Photographer: Angel Navarrete/Bloomberg

Jobseekers wait outside an employment office in Madrid, Spain, on May 8, 2013. Close

Jobseekers wait outside an employment office in Madrid, Spain, on May 8, 2013.

Close
Open
Photographer: Angel Navarrete/Bloomberg

Jobseekers wait outside an employment office in Madrid, Spain, on May 8, 2013.

The rush starts at about 8 p.m. at La Infinito. That’s when Antonio Rojas Fernandez and Paloma Perez Rodriguez’s Madrid cafe usually fills up, typically keeping them busy until midnight.

While they have two part-timers to help prepare food and bus the dozen tables a few times a week, the couple hasn’t taken more than a day off each since opening in May 2012, five months after they lost their jobs. She was a teacher, while he installed television antennas.

“It’s not easy, but it’s working,” said Perez, 36, popping her head through a beaded curtain from the kitchen as the fruit blender’s whir covers the music. “I tell people it’s true I still have problems,” said Rojas, who is a year older. “The difference is that now they’re the ones I’ve chosen.”

As Spaniards endure the worst economic crisis and deepest austerity measures in their country’s democratic history, start-up companies are proliferating.

Over the first seven months of the year, registrations of self-employed people increased by 21,992 while they fell by 6,826 over the same period a year earlier. The number of companies created increased by 8.2 percent in the first half as a 26 percent unemployment rate spurs entrepreneurship in a country where the government still accounts for one in six jobs.

Necessity Entrepreneurship

That compares with a 20 percent increase in new businesses in neighboring Portugal, where unemployment is at 16.4 percent. The number of start-ups in Germany and France, the euro area’s two largest economies, is declining, data from national statistical offices show.

“There are indications that necessity entrepreneurship, people who create a business to exit unemployment rather than by opportunity, is increasing in Spain,” said Mariarosa Lunati, Paris-based economist at the Organization for Economic Cooperation and Development who specializes in entrepreneurship. “This seems to be happening in other countries that are in a situation of crisis as well.”

Spain’s gross domestic product contracted more last year than initially estimated, INE, the national statistics institute, said today. It revised the data to a 1.6 percent drop from 1.4 percent. In 2011, the only positive year since 2008, growth was 0.1 percent instead of 0.4 percent, it said.

Comfort Zone

The crisis has jolted people out of their comfort zone, said Paris de L’Etraz, general director of the Venture Lab at the Madrid campus of the IE Business School. “Necessity is changing this unfortunate chip in people’s mind that led to a situation in which, even four or five years ago, more than half the population wanted to work for the government.”

New companies will help foster an economic recovery in Spain if they can generate jobs, business for other firms and revenue for the state, said Pedro Nueno Iniesta, an entrepreneurship professor at Madrid’s IESE business school.

Prime Minister Mariano Rajoy predicts the economy will grow this quarter after the recession abated in the first half of this year, reducing the unemployment rate for the first time since 2011 in the second quarter.

Spain’s parliament last month approved a law simplifying paperwork and creating tax breaks to encourage more Spaniards to become self-employed or start a company. Lawmakers are in the process of looking at another one to reduce the risk of losing personal assets in the event of a bankruptcy.

Fragile Recovery

“It’s very positive that people aren’t just staying paralyzed and it’s normal that all businesses don’t prosper,” Nueno said. “Some will last and that means a job is created and another can follow that contributes to the economic recovery.”

Yet the fragility of the new companies poses a risk to the economy, said Pilar Andrade Sanchez, president of Ceaje, the young entrepreneurs’ business lobby in Spain.

Figures from the INE statistics office show that 53 percent of Spanish companies have no employees, as many can’t afford to hire full-time workers. That portion reached 55 percent last year. The total number of businesses declined for a fifth year in 2012, falling to the lowest level since 2005, the INE said in a statement this month.

While the number of companies seeking protection from creditors fell to 2,408 in the three months through June, the count was 62 percent higher than in the same period in 2011.

“We need to help companies to consolidate or else we’ll keep on churning out companies that go bust after a year,” Andrade said in a telephone interview.

State Jobs

Interest in start-ups increased as Rajoy, 58, made it tougher to find work funded by taxpayers.

Since he came to power at the end of 2011, the number of people employed by the state and related companies and organizations dropped 12 percent after rising to 3.22 million, the most since the start of data in 1976, INE data show. Over the same period, private employers cut 6.7 percent of jobs.

Sara Gonzalez Servant, 29, and Cristina Jimenez Diaz, 30, set up consulting firm Indaga Research after the Fuenlabrada municipality in the Madrid region stopped renewing their temporary contracts because of spending cuts. Fuenlabrada now only buys their reports on local development sporadically and the pair is looking for new clients.

Crisis Navigation

Both had flitted between jobs, unemployment and training since earning university degrees in 2006 and 2007 as the real-estate boom ended. Youth unemployment in Spain is the second-highest in the European Union, after Greece, at 56 percent.

“We set up shop to find a way out of the crisis,” said Jimenez. “It’s not easy. There are months without pay.”

About 1.8 million Spanish households, or one in 10, didn’t have a single breadwinner in the second quarter, 5 percent more than last year, according to INE. Average household spending fell 3.4 percent last year from a year earlier, the statistical office said last month. Mortgage lending fell by 43 percent in June from a year before, the sharpest decline since February 2012, INE said today. The amount of loans granted by banks for home purchases declined every month for more than five years.

While the government last month approved a budget extension of 5.9 billion euros ($7.9 billion) for financial aid for the unemployed, the conditions to claim it have become stricter. Sixty-two percent of jobless received compensation in June, down from 66 percent a year earlier, Labor Ministry data show.

Needing Options

Jobseekers are trying to widen their options, according to the Spanish unit of Randstad Holding NV (RAND), a Dutch recruiter that’s hired by companies to help dismissed workers find new employment. The proportion of those people losing their jobs who decide to start a business has risen to 15 percent, more than three times the historical rate, said Carmen Sebrango, Randstad’s outplacement director in Spain.

“Some sectors are particularly punished by the crisis and simply don’t have any more capacity to absorb people,” Sebrango said. “People opt for creating a business because it’s too difficult for them to find work with another company, or because wages are falling or they can’t move to another place.”

At La Infinito in central Madrid, Perez said she felt angry and hurt when she lost her job with the daycare center run by the Leganes municipality on the outskirts of the Spanish capital as it cut spending. Then the Rojas family’s TV antenna business folded around the same time.

Busiest Square

The couple set up the café in the hilly, narrow streets of Madrid a 10-minute walk from Puerta del Sol, the city’s most central and busiest square. They reckoned a small eatery was the quickest, most feasible way of making a living while doing something that interests them.

They raised 70,000 euros from a combination of savings, money Perez received when losing her job and loans and now take home about 1,000 euros a month each. They are waiting for people to return from summer vacations in September so they can restart events in a small theater in the café’s basement.

Trial 20-minute plays and recitals last month brought a full house and they are hoping to do well enough to be able to hire a full-time waiter rather than relying on the temporary help they get on weekends and performance nights. It’s not only a question of lightening their load, Perez said as she wiped a table clean.

“What could be more rewarding than creating a job, not only ours but another one?” she said.

To contact the reporter on this story: Angeline Benoit in Madrid at abenoit4@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.