Spain’s unemployment rate rose to 22.9 percent, the highest in 15 years, increasing pressure on Prime Minister Mariano Rajoy to change labor rules and deliver on his election pledge to create jobs in a shrinking economy.
The unemployment rate rose in the fourth quarter from 21.5 percent in the previous three months, the National Statistics Institute in Madrid said today. That’s more than twice the euro- region average and exceeds the median estimate of 22.2 percent in a Bloomberg survey of seven analysts.
Spain is home to a third of the euro region’s unemployed, according to the European Union’s statistics office, which estimates that half of young Spaniards are out of work. The People’s Party government, which won the Nov. 20 election after a campaign focused on jobs, has promised to overhaul labor and wage rules in the next two weeks to prompt companies to hire.
“This shows that the government has to carry out a labor reform that focuses on incentivizing hiring, rather than just on cutting firing costs,” Estefania Ponte, chief economist at Cortal Consors, said by telephone in Madrid. “The unemployment rate could end the year at 24 percent.”
The euro pared losses after the data were released, trading at $1.3102 at 9:32 a.m. in Madrid, down less than 0.1 percent.
Underground Economy
The number of households with all members out of work rose to 1.58 million, and the unemployment rate among immigrants was 34.8 percent, INE said.
Some people registered as unemployed may be working informally. The government has said it will crack down on benefits fraud and limit cash transactions, while Spain’s underground economy may be worth the equivalent of about 19 percent of gross domestic product, compared with 25 percent in Greece and 22 percent in Italy, according to Friedrich Schneider, an economics professor at the University of Linz in Austria.
Spain’s economy contracted 0.3 percent in the fourth quarter, the Bank of Spain estimated on Jan. 23, and may shrink 1.5 percent this year, pushing the unemployment rate to 23.4 percent. That forecast is based on the premise that the government will meet its target of trimming the budget deficit to 4.4 percent of GDP from about 8 percent last year.
‘Good for Spain’
Spain plans to change the wage-bargaining laws that allowed labor costs to rise as much as 5.8 percent in annual terms during 2009, the year the economy contracted the most in six decades. It also wants to encourage employers to use open-ended contracts rather than temporary agreements, the People’s Party said during the election campaign.
Unions and employers reached an agreement this week to sever the connection between salaries and inflation, limiting wage hikes this year and next to 0.5 percent and 0.6 percent, respectively, and linking wage increases in 2014 to economic growth.
Rajoy said yesterday the agreement was “good for Spain,” and pledged additional measures in the next couple of weeks, after the International Monetary Fund, European Central Bank and EU all called for changes to labor rules. More than two-thirds of the jobs lost in the euro region since 2008 were in Spain, Eurostat data show, after the decade-long building boom that drew almost 4 million immigrants to the country collapsed.
The bill will aim to help young people into the job market as the unemployment rate among Spaniards under 25 is 49.6 percent, according to Eurostat, more than twice the euro-region average.
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