The Spanish paradox: why jobs are booming while the economy is lagging

Juan Manuel Canals and Basma Eddaheri, both in their twenties, are part of why Spain has denied predictions of massive job losses in the wake of Covid.

During the pandemic, Canals started working as a computer engineer; Eddaheri has been running a Covid hotline for a month.

Their early work experiences reflect broader changes in the Spanish economy. More people are now employed in sectors such as health, IT and social services than was the case when Covid-19 hit just under two years ago.

Such growth – fueled in part by government spending – helps explain why the number of people in work has reached a record 20 million. Unemployment has fallen to its lowest level since 2008, around half the rate of one in four once predicted by groups such as the OECD.

“It’s very easy to get jobs in this industry,” says Canals, an engineer at Kyndryl, an IT services company spun off from IBM last year. “As someone new to the job market, I see a lot of opportunities. . . I feel very optimistic.

At another extreme of the labor market, Eddaheri also expresses optimism after being helped by Iter Foundationa Madrid association that helps young people find work.

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“I like the fact that I can help people,” she said. “My contract [on the Covid helpline] it’s for three months, but after that I’d like to do something else like that.

Unemployment has been Spain’s glaring failure for decades and the country’s unemployment rate of 13% remains twice EU averageas does its youth unemployment rate of 31%.

But surprisingly, more than a third of all jobs created in the eurozone last year were in Spain. Youth unemployment in the country is down 10 percentage points from its level a year ago.

The Spanish government, which last week narrowly passed a long-negotiated labor law reform to restrict temporary contracts, says the acceleration of technological change and increased social spending triggered by the pandemic are here to stay. . Madrid plans to dedicate 30% of its €70 billion EU coronavirus recovery fund to digitalisation, as well as increasing funds for health.

Last month, the Ministry of Social Security noted there were 429,000 more jobs than in February 2020 – 229,000 in the public sector and 200,000 in the private sector.

Line graph of unemployment rates (%) showing that Spain has a higher unemployment rate than other major European economies

“If you look at Spain’s last three economic crises, jobs have never recovered so quickly,” said a government official.

Spain’s figures are part of a global trend that has defied expectations of huge job losses as demand has returned to the economy and labor has proven to be scarce rather than excess.

Christine Lagarde, president of the European Central Bank, said last week that there was “good news to celebrate” after unemployment in the euro zone fell to a record low of 7%, while the participation of workers rebounded above pre-pandemic levels at 73.6%.

The United States also reported strong numbers last week, with an increase of 467,000 jobs in January, three times expectations.

Spain’s figures also reflect a Europe-wide gamble on furlough schemes.

At its peak, the Spanish scheme – known as ERTE – supported 3.6 million people. Since last month, just 106,000 people were on the pandemic diet. “We had analysts saying that a million people on the ERTEs would end up unemployed,” the government official said. “But the number of people still on the diets is only a tenth of that and steadily declining.”

Rafael Doménech, head of economic analysis at BBVA, the bank, said: “Europe has been betting on maintaining jobs, in the hope that companies could return to their previous activity, and for most companies , in almost every industry, that’s what happened.”

This contrasts with the consequences of the financial crisis, when Spain’s oversized construction sector collapsed, destroying large numbers of jobs and pushing unemployment up to 26% in 2013. More than one in two young people were without use.

But he acknowledges a Spanish paradox: Despite an improving labor market, the country’s gross domestic product remains around 4% below 2019 levels. Much of the reason for the disparity, he believes, is due to tourism, a seasonal activity that accounts for about 12% of GDP.

Last year the number of foreign tourists visiting Spain – and the money they spent – was down more than 60% from 2019 levels.

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Working hours are also down from pre-pandemic levels despite the increase in employment. Even in the fourth quarter of last year, the total number of Hours worked was down almost 4% from the same period in 2019 – a difference according to Doménech may be due to factors such as staff self-isolation and companies concerned about overspending.

Domestic demand is still weak in Spain and, as in other countries, wages have not kept pace with inflation, which has reached 30-year highs of up to 6.5%. Some unions are increasing wage demands. “The main question mark remains whether the economy can sustain higher wage growth and a still double-digit unemployment rate,” said Giada Giani, economist at Citigroup.

Youth unemployment also remains a huge problem. “For someone who has no education, it is very difficult to get a good job; you only get the job that no one wants,” says Carlos Inca, who recently completed the Fundación Iter training course near Madrid.

But things are looking up for the 18-year-old, who has just landed a job promoting solar panels – another area where Spain says it is using EU funds to invest in its future.

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