Research Dept. News
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Monthly Report, num 350 - October 2011
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Spain: overall analysis - Labour market
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Deteriorating expectations could have a negative effect
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The labour market still isn't recovering.
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Once again, the figures being provided by the labour market are not very encouraging. No-one expected the recovery to be buoyant or immediate and it's common knowledge that the labour market starts to recover quite a long time after economic activity as a whole. This time lapse is the minimum period required for the different agents to regain confidence in the economy's ability to grow. That's when people start to invest again in the labour and also the capital factor. But we've already seen six quarters of positive growth in the gross domestic product (GDP) and the data on labour market trends are still not very optimistic.
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In August, for example, the number of people registered as employed with Social Security was down by 136,835. Jobs are normally lost in the second month of the summer, so this figure should not be taken too literally. For example, between 2005 and 2007, 154,000 jobs were lost during this month on average. However, the good tourist season allows us to be a little more optimistic. The figures for registered unemployment aren't very heartening either, as this rose by 51,185 people. However, if we take seasonal effects into account, the rise is less in this case as well, albeit still slightly positive.
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Market services are already creating jobs.
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The National Accounts system employment figures for the second quarter confirm this scenario of a slow recovery. Full-time equivalent jobs fell by 1.0% in the second quarter, four tenths of a percentage point less than in the first. A figure that is still being strongly hit by job losses in the construction industry and, accordingly, it's important to note that the percentage change is now positive in other sectors, such as market services.
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The delay in the labour market's recovery is partly due to the slow speed of the recovery in the economy as a whole. This means that the confidence of the different agents is also slow to improve.
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The lack of confidence prevents substantial improvements in unemployment.
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Within this rather discouraging scenario, we must now factor in a significant change in expectations. The upswing in tensions in European financial markets due to Greece's dwindling growth prospects and rumours of it defaulting on its public debt, added to the poor growth figures for the US and euro area economies in the second quarter, have ended up affecting the medium-term growth prospects for developed countries as a whole. As we explained before, this aspect is crucial to restoring confidence in order to invest in the labour factor. This has led us to slightly revise our forecasts for the unemployment rate in 2012.
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But it's not all bad news. The figures for labour factor costs are more encouraging, particularly if we take into account the fact that the improvement in the Spanish economy's competitiveness depends on their adjustment. According to data from the National Accounts system, wages for salaried workers fell by 0.5% year-on-year in the second quarter. This was particularly due to the reduction in cost per salaried worker, which went from a 0.8% increase in the first quarter to 0.2% in the second. Consequently, unit labour costs stabilized at –1.5%, three and a half points below the economy's implicit deflator.
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Spain gains competitiveness through wage costs.
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The data from the quarterly survey on labour costs point in the same direction and the rate of growth in total labour costs continues to be relatively moderate. In the second quarter, this stood at 0.8% year-on-year, a much lower figure than the one recorded before the recession. This moderation is particularly due to the wage component, which only rose by 0.6%, while other costs increased by 1.5%. It is surprising, however, that the service sector is the one contributing most to wage containment, while total labour costs rose by 3.0% in the construction industry.
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Consequently, a comparison with the euro area continues to be favourable in terms of the Spanish economy's improved competitiveness. In the second quarter, labour costs per hour grew by one percentage point less than in the euro area as a whole and the gap from the first quarter has therefore widened by one tenth of a percentage point.
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In short, the labour situation continues to be somewhat gloomy and is now being affected by the diminishing growth prospects of advance economies as a whole. At least the underlying trend continues in terms of improving the competitiveness of the labour factor in the Spanish economy, a key factor to growth reviving.
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