Spain is done. This is bad.
Spain is in a great depression, and it is one of the most terrifying things I have ever seen.
Five years after its housing boom turned to bust, Spanish unemployment hit a record high of 27.2 percent in the first quarter of 2013. It’s almost too horrible to comprehend, but 19.5 percent of the total workforce has not had a job in the past six months; 15.3 percent have not in the past year; and 9.2 percent have not in the past two years.
Here is why it is so bad
Spain is in a great depression, and it is one of the most terrifying things I have ever seen.
Five years after its housing boom turned to bust, Spanish unemployment hit a record high of 27.2 percent in the first quarter of 2013. It’s almost too horrible to comprehend, but 19.5 percent of the total workforce has not had a job in the past six months; 15.3 percent have not in the past year; and 9.2 percent have not in the past two years.
In other words, unemployment is a trap people fall into, but can’t fall out of. Indeed, the rate of new unemployment has stabilized at a terrible, but not quite-as-terrible, level, as you can see with the flat blue, red, and green lines. But the steadily rising purple line shows us that the rate of job-finding for the jobless has collapsed.
That is what a permanent underclass looks like.
What happened?
Why has Spain’s jobs depression been so great? After all, its GDP is “only” 4.1 percent below its 2007 level, compared to 5.8 percent below for Portugal, 7 percent below for Italy, and 20 percent below for Greece. But despite this better (negative) growth, unemployment is higher in Spain than the others. In other words, Spanish unemployment isn’t just about inadequate demand. Part of it is structural.
Spain’s labor market problems fall into two big buckets: too much regulation, and not enough education. It’s almost impossible for companies to get rid of older workers, which creates a horribly bifurcated labor market. There are permanent workers who can’t be fired, and temporary ones who can — and are. Indeed, as Clive Crook points out, about a third of Spain’s workforce are temporary workers who enjoy few protections and fewer opportunities. Companies go through these younger workers without bothering to invest much in their human capital, because why would they? These temporary workers will be let go at the first sign of economic trouble. Young people get stuck in a never-ending cycle of under-and-unemployment since firms are always hesitant to hire permanent workers who will always be on their books.
But it gets worse. The housing bust hasn’t just cast a shadow over household and bank balance sheets; it’s cast one over young people’s educations too. At its peak, building made up a whopping 19 percent of Spain’s economy, which, as Tobias Buck of the Financial Times points out, lured many young men into dropping out of school for well-paying construction gigs. But now that building has gone into hibernation, all of those young men are left with no work and no education to fall back on. And, again, even if they can find temporary jobs, it’s not as if the companies will spend money to develop their skills.










