Spain's Pyrrhic Victory Over Inequality

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By Mark Whitehouse

Spain achieved great success in reducing income inequality before the global recession hit. Paradoxically, that may now leave it ill equipped to fix its economic problems.

The country's construction boom of the 2000s had a powerful effect on unskilled workers, providing ample jobs and boosting wages. As a result, the income gap between the rich and poor fell sharply, at a time when inequality was rising in other developed nations.

Luis Garicano of the London School of Economics, though, argues that the demand for construction workers had a big downside for Spain's longer-term competitiveness. In a presentation at the Julis-Rabinowitz Center for Public Policy and Finance at Princeton University, he noted that the building boom coincided with a troubling trend in the country's high-school dropout rate. It rose to 31 percent in 2009, at a time when dropout rates were falling elsewhere in Europe. Apparently, the abundance of well-paid, low-skilled jobs made education unattractive.

That could be a big problem now that Spain's housing bubble has burst, unemployment is sky high and the country faces the challenge of developing industries to fill the hole left by construction. With its human capital so depleted, its options are limited.

(Mark Whitehouse is a member of the Bloomberg View editorial board.)

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-0- Apr/20/2012 13:53 GMT