Jobless Pain in Spain: Worse than Rain

Wednesday, 01 May 2013 07:45 AM

By Patrick Watson

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This Friday we’ll learn whether the U.S. labor market improved in April. You can bet that our unemployment rate, whatever it may be, is far better than Spain’s 26.7 percent. This is not a typo.

The latest Eurostat figures show the pain in Spain is more than just rain. Here in the United States we scream “Crisis!” if unemployment reaches 8 percent. What must they think in Madrid and Barcelona?

The rest of the continent isn’t much better: the combined jobless rate of the 17 euro area nations is at an all-time high of 12.1 percent.

As recently as mid-2007, unemployment in Spain was “only” 7.9 percent. That was, you may recall, near the peak of a worldwide property boom with millions of relatively low-skill construction jobs. The recession definitely aggravated the problem, but Spain seems to have had unusually weak labor demand even in a strong economy. Why?

Spain is heavily unionized — but so is the rest of Europe. German unemployment is only 5.4 percent, even with a politically powerful labor movement. What’s different about Spain? When a problem makes no sense, you can usually blame an insane government policy. So it is in this case: Spain has two separate working classes: “permanent” workers and “temporary” workers.

If you are a Spanish permanent worker, you have it made. You are well-paid, you have great benefits and, best of all, it is almost impossible to lose your job. Your rights are defined in a collective-bargaining agreement that covers not only your company, but probably the whole industry. The government backs these contracts with the full force of law.

If, on the other hand, you are a temporary worker in Spain, you have very few rights, limited benefits, lower pay and you can be fired any time. And you will be fired when business slows down, because your employer has no choice. The “permanent” worker class is immune from normal economic forces.

Not surprisingly, even in a strong economy, Spanish businesses are reluctant to hire permanent employees. This is why Spain has so many unemployed young people — 55.9 percent of those under age 25, according to Eurostat. The nation’s youth are locked out of the permanent jobs and the first to be fired from temporary jobs. The small businesses that create new opportunities elsewhere can’t get off the ground in Spain. The labor contracts give larger, established companies a big cost advantage.

I have no idea how Spain can wake up from this nightmare. Greece and Portugal are not much better. We Americans have our share of problems, but it could be much worse.

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