Research Dept. News
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Monthly Report, num 352 - December 2011
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Spain: overall analysis - Labour market
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A return to the 1990s?
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Unemployment comes close to the 5 million mark, with a rate of 21.5%.
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The labour force survey (LFS) for the third quarter has been unambiguous in its confirmation of the progressive deterioration in our labour market. The number of unemployed rose by 144,700 people, reaching a total of 4,978,300, very close to the psychological figure of 5 million unemployed. The unemployment rate therefore increased by just over 0.6 percentage points compared with the previous quarter, reaching 21.5%. We have to go back to the mid-1990s to find a similar rate. But are these two periods really comparable?
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The last time the unemployment rate went above 20%, the economy needed more than five years to recover. Today, Spain's labour market has been above this figure for almost two years and, according to our forecasts, will need at least three more years, up to 2014, for more than 80% of the people looking for work to find employment. Within the current context of an economic slowdown, the short-term outlook does not look at all promising.
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The data from the quarterly National Accounts system showed that gross domestic product (GDP) stood still in the third quarter and, according to our forecasts, activity will shrink and eventually reach negative figures by the start of next year. Within this context, data for the labour market will continue to worsen throughout 2012, reaching an unemployment rate of close to 22.5% by the end of next year.
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Construction and services account for 50% of the rise in unemployment.
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Evidence of the worsening of the outlook is provided by the 144,700 rise in the unemployment figures for the third quarter, so that 403,600 people have already swelled the ranks of the unemployed in the last 12 months. This figure is unusual as the summer usually provides positive data and the summer season this year has been exceptionally good for the tourism industry. Nonetheless, the services sector lost 45,900 jobs and, together with construction, which lost 26,000 people, accounts for almost 50% of the rise in unemployment. Whereas the industrial sector reduced its number of unemployed (23,400) and agriculture only rose slightly, the other big cause of the higher unemployment rate was among those looking for their first job, a group that increased by 48,000 people, as well as those who had lost their job more than one year ago (up by 40,700).
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The public sector is creating jobs while the private sector is destroying them apace.
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It is precisely this last group that causes most concern, since the long-term unemployed account for more than 48% of the total figure and these people tend to have greater problems in finding employment. Similarly, the number of households with all their members unemployed has risen by 10.3% compared with the previous year, reaching a total of 1,425,200. Moreover, in the third quarter of 2011, and for the first time in the last decade, fewer than 70% of households with people of working age have all their members employed. These figures don't only have social consequences but also economic ones, as the number of households going bust increases and households' capacity to consume decreases. Moreover, the deterioration in the labour market could result in many individuals increasing their savings as a precautionary measure, which would limit the recovery in consumption even further.
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One of the most surprising figures from the latest LFS is the fact that the public sector has continued to increase its relative weight of salaried workers. In the third quarter of 2011, 21.2% of all salaried workers were public employees, four points more than at the start of the crisis in 2007. The public sector boosted its number of employees by 3,100 in the last quarter compared with the previous quarter, and has already seen 347,400 additional public employees since the beginning of 2008. On the other hand, during the same period the private sector destroyed 1,985,400 salaried jobs, 116,100 just in the last quarter.
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Along the same lines, employment posted a year-on-year drop of 2.1% (146,800 fewer people in the last quarter), so that the total number of employed in Spain is now 18,156,300. The most worrying is the ongoing decline in entrepreneurs with workers and the self-employed, falling by 7.2% and 3.8% respectively in the last year, as these constitute a very significant proportion of our economy's economic fabric and employment.
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The economy regains its competitiveness and lays the foundations for recovery.
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The only positive interpretation of these job losses is that employment is falling at a faster rate than GDP growth is slowing up, so that apparent productivity is improving. Worker productivity grew by 2.7% in the last quarter, 8 tenths of a percentage point more than in the previous quarter. For their part, unit labour costs fell by 2.1% so that, in 2011, the economy has maintained the trend of the last few years and continues to improve its competitiveness. The adjustment is even greater if we carry out this analysis in real terms, as the real unit labour cost fell by 3.6% in 2010, and the improvement will be even bigger in 2011. Given that this phenomenon of improved productivity is not limited to our economy, Spain will have to persevere to regain its competitiveness compared with its closest European rivals.
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The encouraging competitiveness indices are proof of our economy's capacity to recover, although the question of exactly how long employment will take to pick up brings us back to our first question. Although the crisis in the 1990s and the current crisis have similarities regarding the labour market, they cannot be compared directly. Whereas the crisis was mostly one of supply in the 1990s and there was a huge reconversion in industry, the present crisis is fundamentally one of demand, burdened by the turbulences still present in the euro area, the economy's deleveraging as a whole and the re-assimilation of those employed in the real estate bubble (mainly the construction sector). Although the recovery may be slow and the outlook may get worse in the short term, we do seem to be on the right track.
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