Rajoy's Neglect of Spanish Working Poor Risks Backlash

  • OECD says recovery underway but inequality remains an issue
  • High unemployment risks social alienation and disaffection

Spain, often cited as Europe’s bailout poster child, still has a lot to do to fix its economy, according to the Organisation for Economy Co-operation and Development. 

In a review of the nation’s progress since a crippling real-estate collapse in 2007, the group said that Prime Minister Mariano Rajoy’s reliance on short-term labor contracts coupled with an inefficient tax system and misallocation of benefits payments risks fostering public disaffection even as the economy grows thanks to structural reforms. The precarious nature of the labor market and persistently low productivity are two of the main dangers facing Spain, it said.

While unemployment has fallen from a peak of 26 percent to about 19 percent, youth unemployment remains a problem, the OECD said. The two-tier nature of the labor market -- with older staff benefiting for secure jobs to the detriment of younger workers on temporary contracts -- risks fueling further discontent, according to the report.

“The high share of long-term unemployed risks loss of skills, disaffection and alienation,” the OECD said. “Part of the answer is continued strong economic growth, but strengthening training and job placement and better minimum income support are crucial.”

Almost 40 percent of young Spaniards are unemployed with few skills and close to half of the jobless have been unemployed for more than a year, reducing their chances of reentering the labor market as their skills become obsolete, the OECD said.

The institution called for a better allocation of resources for state-funded programs for job-seekers, improved training programs and more financial support for families with children, noting the current system does little to reduce inequality among Spaniards.

The OECD also noted there is scope for efficiency in the tax system, suggesting an increase in environmental levies and abolishing reduced value-added tax rates could help prop up revenue without penalizing workers. While the nation has undergone a structural improvement toward a more balanced economy, public debt remains high, it added.

Speaking in Madrid after the report was published, Economy Minister Luis de Guindos said the Spanish government takes into account the recommendations by the OECD, but warned the lack of a parliamentary majority could delay implementing new reforms.

Debt Pile

Spain’s public debt has almost tripled since 2007 after a decade-long housing bubble came to an abrupt end, prompting the worst economic crisis in modern history. With the debt pile at around 100 percent of output, Spain is still in breach of European rules demanding all member states keep their national debt below 60 percent of gross domestic output.

Noting the persistently low productivity holding back growth, the OECD recommended removing barriers to competition and called for increased funding for firms focused on innovation, research and development to avert a brain drain and correct an historic problem of unproductive firms soaking up capital.

“Low productivity reflects in part poor skills, over reliance on temporary workers, low business innovation, inefficient allocation of capital to low productivity firms, and high barriers to starting and growing a business,” the OECD said.

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