The Spanish paradox: why jobs thrive when the economy lags behind

Economy News

Juan Manuel Canals and Basma Eddaheri, both in their 20s, are part of the reason why Spain confused predictions of massive job losses in the wake of Covid.

During the pandemic, Canals began working as an IT engineer; Eddaheri has been manning a Covid helpline for a month.

Their first experiences of work reflect broader changes in the Spanish economy. More people are now employed in sectors such as health, IT and social services than was the case when Covid-19 hit just under two years ago.

Such growth – fueled in part by government spending – helps explain why the number of people in employment has reached a record 20 million. Unemployment has fallen to its lowest level since 2008, about half the rate of one in four previously predicted by groups such as the OECD.

“It’s very easy to get jobs in this sector,” says Canals, an engineer at Kyndryl, an IT services company that was spun off from IBM last year. “As someone who has just entered the labor market, I see many opportunities. . . I feel very optimistic. “

In another extreme of the labor market, Eddaheri also expresses optimism after being assisted by Fundación Iter, a Madrid non-profit organization to help young people find work.

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“I like the fact that I can help people,” she said. “My contract [on the Covid helpline] is for three months, but after that I want to do something else like that. ”

Unemployment has been Spain’s horrific failure for decades and the country’s unemployment rate of 13 percent remains twice the EU average, as well as its youth unemployment rate of 31 percent.

But remarkably, more than one third of all eurozone jobs last year were in Spain. The country’s youth unemployment is 10 percentage points lower than a year ago.

The Spanish government, which last week carefully approved a long-negotiated reform of labor laws to limit temporary contracts, argues that faster technological change and increased social spending caused by the pandemic are here to stay. Madrid plans to spend 30 percent of its € 70 billion on EU coronavirus recovery funds on digitization, as well as raising health funds.

Last month, the Ministry of Social Security said there are now 429 000 more jobs than in February 2020 – 229 000 in the public sector and 200 000 in the private sector.

Line graph of unemployment figures (%) showing that Spain has higher unemployment than other major European economies

“If you look at the last three Spanish economic crises, jobs have never recovered so quickly,” says a government official.

Spain’s figures are part of a global trend that has disregarded expectations of huge job losses, as demand for the economy has returned and labor has turned out to be scarce rather than surplus.

Christine Lagarde, the president of the European Central Bank, said last week that there was “good news to celebrate” after unemployment in the eurozone fell to a record low of 7 percent, while worker participation was 73.6 percent above pre-pandemic levels. returned.

The US also reported strong numbers last week, with 467,000 jobs rising in January – three times expectations.

Spain’s figures also reflect a European bet on leave schemes.

At its peak, Spain’s scheme – known as ERTEs – supported 3.6 million people. As of last month, only 106,000 people were on the pandemic scheme. “We had analysts who said that 1 million people on ERTEs would be unemployed,” the government official said. “But the number of people still on the schemes is only a tenth of that and is gradually declining.”

Rafael Doménech, head of economic analysis at BBVA, the bank, said: “Europe has made a bet to keep jobs, with the expectation that businesses can recover their previous activity, and for most companies, in almost all sectors, that’s what happened. ”

This is in contrast to the aftermath of the financial crisis, when Spain’s oversized construction sector collapsed – destroying large numbers of jobs and pushing unemployment up to 26 percent in 2013. More than one in two young people was unemployed.

But he acknowledges a Spanish paradox: despite the improvement in the labor market, the country’s gross domestic product remains about 4 percent behind 2019 levels. Much of the reason for the inequality, he thinks, is due to tourism, a seasonal business that accounts for about 12 percent of GDP.

Last year, the number of foreign tourists visiting Spain – and the money they spent – fell more than 60 percent at 2019 levels.

You see a snapshot of an interactive graphic. This is most likely due to the fact that you are offline or that JavaScript is disabled in your browser.

Working hours are also lower at pre-pandemic levels despite the increase in employment. Even in the fourth quarter of last year, the total number of hours worked was nearly 4 percent lower than the same period of 2019 – a difference Doménech could suggest due to factors such as self-isolating staff and businesses being careful to spend too much.

Domestic demand is still weak in Spain and, as in other countries, salaries have not kept pace with inflation, reaching 30-year highs of up to 6.5 per cent. Some unions are raising wage demands. “The key question remains whether the economy is experiencing higher wage growth and an unemployment rate that can still sustain in double-digit territory,” said Giada Giani, an economist at Citigroup.

Youth unemployment also remains a major problem. “For someone without studies, it is very difficult to get a good job; you just get the job no one wants, ”says Carlos Inca, who recently did Fundación Iter’s training course near Madrid.

But things are looking good for the 18-year-old, who has just gotten a job promoting solar panels – another area where Spain says he is using EU funds to invest in his future.

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