Economics for Management. Unemployment in Spain

Table of Contents

Introduction
Nature of Unemployment
Alleviating Unemployment
Conclusion
Reference List

Introduction

Unemployment takes place when a person that is inactive searches for a job is unable to find it. The concept is often used for measuring the health of an economy, with the unemployment rate being the most prominent indicator that is evaluated regularly. The unemployment rate is calculated by dividing the number of unemployed people divided by the number of individuals who have a job. Spain was chosen as a subject of research because the country has undergone some significant developments in unemployment.

Nature of Unemployment

The Spanish economy has been subjected to significant challenges in terms of the development pace. For a decade, it was developing rapidly until the 2008 recession, which slowed down the economy. With such fluctuations came the issue of unemployment that was based on several important factors. First, the nature of unemployment in Spain was significantly based on bricks and mortar as the focus of the economy. For example, between 2000 and 2009, the country accounted for 30% of all new construction buildings in the EU even though its economy generated 10% of the total GDP of the EU. This is linked to the fact that when Spain adopted the euro as currency and 1999, the interest rates were on a low level and thus allowed to view the property as a positive investment.

With the collapse of the construction sector, which was overtaken by other areas of the economy, the country witnessed a record of joblessness (Cebr 2013). The jobs in the construction sector, which were created very quickly, evaporated at the same rapid rate. Between 2002 and 2007 when the sector was booming, the total number of jobholders, including those on temporary contracts, increased by 4.1 million, which is a significant rise compared to any other EU country as the number was three times higher than the number of jobs created in the preceding sixteen years (Chislett 2014). Since the recession of 2008, more than three million jobs have been lost, with around half of them being in the construction and related industries.

Another characteristic behind the nature of unemployment in Spain is linked to rigid labor market laws. In the first quarter of 2019, the unemployment rate in Spain increased to 14.7% from 14.45% in the previous period (see Figure 2) (Trading Economics 2019). According to Trading Economics (2019) statistics, the highest unemployment rate is recorded in the region of Extremadura (22.5%), followed by Andalucía (21.1%), and Canarias (21%).

Spain unemployment. — Figure 2. Spain unemployment (Trading Economics 2019).

The Spanish labor market is considered dysfunctional because even at the peak of economic development in 2007, the unemployment rate was 8%, which is high when compared with such countries as the US. At the end of hiring, the labor market laws were flexible, with significant use of temporary contracts. At the firing end, however, severance payments were much higher when compared to other countries. Such legislation enabled employers to be reluctant regarding putting workers on permanent contracts. In 2012, the Popular Party passed the legislation that lowered the costs of dismissal and therefore gave companies more leverage in collective wage bargaining associated with unions and the management.

Youth unemployment is a pressing issue in Spain that has gotten worse during the crisis. The 32.6% level of youth unemployment that was registered in 2019 is a shocking statistic that indicates that the issue requires immediate addressing (Statista 2019). Connections between youth unemployment and the effectiveness of educations are imperative to mention due to the links between education-related decisions and the development of the labor market. For example, the country has high rates of early school leaving, which is calculated as the percentage of the population aged between 18 and 24 that did not get secondary education and that has not participated in any additional training to become a specialist. Spain is a third-rated country with the highest early school leaving rate, which has a significant influence on job attainment.

The fact that many young people are leaving school early makes it complicated for them to transition to the work environment and, as a result, experience frequent repercussions in their professional careers. In addition, the country does not invest enough in research and development only 1.22% of GDP, which is low compared to other countries (Trading Economics 2016). For example, France spends 2.23%, Germany spends 2.87%, while Sweden spends 3.26% of their GDPs (Trading Economics 2016). As a result of low investment into research and development, young professionals are more likely to leave the country in search of high-paying job opportunities (BBVA 2011). Also, due to early school leaving, there is a lack of expertise and training to facilitate research and development.

The issue of immigration should also be mentioned when it comes to discussing the nature of unemployment in Spain. At the moment, the government is working on establishing tougher laws on immigration with the purpose of avoiding pressure from mass arrivals at a time when immigration has become a relevant on an election year (Abellan 2019, para 4). Firm actions are needed because the country has been subjected to significant migratory pressure since Spain experienced a drastic increase in the inflow of immigrants compared to any other country in the EU. It is notable that the majority of them worked in the construction sector and therefore were subjected to massive job loss associated with the 2008 recession because of them signing temporary contracts. With the unemployment rate being higher among immigrants than among native Spaniards, some of the former started returning to their homeland in 2012, contributing to the population decline.

Alleviating Unemployment

Solving the perpetuate unemployment crisis in Spain, several steps that would address different aspects contributing to the problem. The consensus is that the government should start with reforming the banking sector and work on stabilizing its finances, thus regaining the populations trust in markets. Investment into productivity increasing, growth-enhancing, the creating of jobs, and improving competitiveness represent the core of efforts necessary to alleviate the burden of unemployment. To get the unemployed back to work, the economic structure of the country along with labor laws should be changed as soon as possible. The government is also expected to spend more money on infrastructure projects that support job opportunities for the population.

Addressing the education and training issue is among the steps to reduce the unemployment rate. The recommended solutions are expected to capture two aspects. First, the government should place more emphasis on helping students who at a particularly high risk of abandoning education (Ministry for Education and Employment 2014). The development of an early-warning system, as well as compulsory participation in classes of intensive support, is likely to improve the control over high-risk students. Meanwhile, it is also imperative to encourage the youth to remain within the educational system with the help of policies that support education appealing to both young people and their parents (BBVA 2011). Second, it is recommended to reincorporate the youth that has left schools early back into the educational system. This is possible through the creation of flexible educational programs. This will allow students to access the necessary training to prepare them for their professional careers despite them leaving the educational system early.

Significant changes in the labor market system and regulations guide the hiring and firing of employees. The use of temporary contracts must be highly regulated due to the need to prevent employers from hiring workers on a short-term basis and paying them unfair wages. Incentives for on-the-job training should be introduced to avoid the depreciation of worker skills and ensure that their value increases through the experience they receive during their employment. Increasing the role of employees in terms of training is a solution that can greatly benefit the issue of unemployment in Spain. On-the-job training is a solution that will be critical to ensuring the success of effective employment transformation programs, especially since most of the work should be started from scratch. The establishment of a system that implies the hiring based on a single contract for all workers can help to avoid complexities associated with the existence of multiple types of contracts. Also, such a system will simplify the recruitment process and allow the entry of highly qualified workers and the youth that has multiple opportunities for becoming professionals in their chosen fields.

Immigration as a contributor to unemployment in Spain is expected to be addressed from two perspectives. On the one hand, with little training and the lack of demand for skilled professionals who want to earn more than average, there is a risk of them leaving the country. On the other hand, less-skilled workers will remain in Spain because of the greater demand for a cheap labor force. Both categories should be seen as potentially damaging to the economy of the country if no changes are implemented. As there is wide potential to be found in the country and the possibility of attracting talent from abroad, the government should focus on drastic reforms to regulate illegal immigration while also helping the low-skilled workers to gain the necessary level of expertise to contribute to the economy instead of being forced to leave.

Because the reduction of the unemployment rate is closely connected to monetary policies, the prospects of improving the issue are high. For the past twenty years, the inflation in Spain was below 2% that was achieved with the help of effective monetary policies, the integration of the euro as well as the successful agreement between unions, and social peace through the moderation of wages (De Zulueta 2019). It is possible to achieve a balance between unemployment rates and how the government approaches such issues as inflation. One can resolve the main issues that affect Spain through the introduction of cohesive regulations that would address the factors that contribute to unemployment. High and persistent unemployment rates cause social exclusion in the country and generate sections of income inequality among both the young and the old.

Conclusion

To conclude, Spain has the potential to reduce the unemployment rate, especially since it has already decreased significantly from 2016 (refer to Figure 2). Creating employment and eliminating the fear of losing jobs is seen as a significant force for shaping a society that is stable and achieves the established objectives. The proposal to address education, immigration, and labor laws issues is expected to establish a consensus in which the self-esteem of the nation is reinforced by positive governmental policies.