Spain’s Worst Year for Work Leaves Rajoy Counting Cost
Spanish Prime Minister Mariano Rajoy can count the social cost of the economy’s slump when data this week show how 2013 was probably the worst year for work in its democratic history.
Economists predict the unemployment rate in Spain, home to almost a third of the euro region’s jobless, stayed above 25 percent for the sixth quarter in a row. The National Statistics Institute in Madrid will release the report for the final three months of the year on Jan. 23.
Included in the total is Jose Nieto Lopez, for whom a job remains as elusive as ever even after the economy limped out of its most recent recession in the third quarter. The 49-year-old former security guard, who says he’s up for any position going, is competing with an army of workless adults for whom paid employment is becoming a distant memory.
“I’m glad I don’t have any children, because I don’t need to worry when I go to bed without dinner,” says Nieto, a Madrid native who last drew a salary in 2010.
Spain’s nascent recovery from its second recession since 2008 has pushed the government’s 10-year borrowing costs to a seven-year low and the Ibex 35 index of leading companies up more than 20 percent in a year. While the government forecasts gross domestic product will grow at least 0.7 percent this year, unemployment remains a stubborn obstacle in Rajoy’s quest for lasting growth.
The yield on Spain’s 10-year benchmark bond fell two basis point today to 3.69 percent at 5:28 p.m. in Madrid, compared with a euro-era high of 7.75 percent in July 2012. The spread with similar German maturities narrowed to 195 basis points.
“There’s no doubt the economy is improving, but it’s not enough to significantly reduce the jobless rate,” said Josep Comajuncosa Ferrer, an economics professor at Esade Business School in Barcelona. “High unemployment, with its social cost and impact on public finances, remains the big issue.”
Because of joblessness, fewer people are contributing to the social security system. The number doing so in December was down 85,000 from a year earlier, and that tally is unlikely to improve much if unemployment remains where the government predicts, at around 25 percent through 2014.
Overshadowing the labor-market outlook is the impact of longer-term joblessness. Almost 60 percent of Spain’s unemployed have searched in vain for work for a year or more, and 37 percent for at least two years. About 40 percent no longer qualify for unemployment benefits, up from 31 percent in 2011.
Nieto moved into his father’s home after losing his job, and his 44-year old brother joined them after struggling to find work as a waiter. They share 1,000 euros ($1,358) a month between them, including the father’s pension and a 400-euro benefit payment. The only money Nieto can earn for now is a few euros at a time selling bracelets on the streets of Madrid.
A fifth of Spain’s population lives under the threshold for poverty as defined by the EU’s statistics agency, Eurostat. The dearth of jobs and the deepest austerity in more than 30 years have pushed average household income down 10 percent since 2008.
“It would be very optimistic to say Spain’s unemployment rate has no implications for its economic outlook,” said Jonathan Loynes, chief European economist at Capital Economics Ltd. in London. “Surely it has to put a limit on the upturn in spending and income.”
The 26 percent unemployment rate forecast by economists for the fourth quarter data this week would still be an improvement. The number of jobless in Spain peaked at a record 27 percent a year ago, with a total of 6.2 million.
The rate would be even higher now had Rajoy not overhauled labor rules in 2012, according to a report in December by the Paris-based Organization for Economic Cooperation and Development. The measures have aided hiring by making it easier and cheaper for companies to fire workers or lower wages.
While the government has rejected calls from the International Monetary Fund and the OECD to further increase labor-market flexibility, it has pledged to simplify work contracts, and wants to kick-start hiring by getting recruitment companies to find work for unemployed people.
For now, a 10th of the nation’s 17.4 million households have no breadwinner left. The proportion rises to 14 percent of them when excluding those without active members such as retired couples.
Washington Espin Camacho’s family have faced that predicament since October. He lost his job handling goods for El Corte Ingles, Spain’s largest department store chain, in the Madrid region. For the first time since the 41-year-old left Ecuador 14 years ago, his parents are sending him money as neither he nor his wife find work. His monthly 830-euro unemployment benefit isn’t enough to pay the mortgage and support their two daughters.
“We’re stuck and we can’t do anything,” Espin Camacho says. “We only hope the bank will accept to take over our flat and free us from our debt.”