By Débora González, a lecturer on the Master in Financial Management at EAE
August has not been a good month in terms of jobs. According to statistics published by the Ministry of Employment, the unemployment rate is up and Social Security contributions are down. To be specific, the number of people out of work registering at Spanish job centres rose by 46,400 in August compared to the previous month, reaching a total of 3,382,324 people. Social Security lost 179,485 contributors (0.97%), while the unemployment rate climbed to 19%, significantly higher than the rate in other countries in the European Union (except Greece with a rate of 23.5%).
In terms of its size, duration, impact on economic growth and the social inequality it causes, the unemployment rate is a crucial problem for the Spanish economy. It has a wide range of characteristics that do not always depend on the economic cycle. The figures on people in work has seen a limited level of success associated with the economic recovery. However, this employment is not consolidated but rather the jobs are linked to seasonal sectors that often lack stability (tourism, education, etc.). There are three structural causes that explain the persistence of the unemployment rate.
1. The first is the mismatch between the supply of jobs and the features of the demand. Educational levels must be adapted to the training requirements of the labour market. We need to improve the quality of education through better university training for teachers and ensure that the competences taught are aligned with the needs of business, including companies within students’ tuition and/or in the design of study programs.
2. The second is the evolution of employment costs. The non-salary costs of employing people have to be reduced to prevent them from acting as a tax on hiring new employees and becoming a significant barrier to entry for businesspeople looking to start or grow a company. The high Social Security contributions that companies are obliged to pay act as a disincentive to creating or maintaining jobs. Salary policies should link pay rises to productivity so that companies can reinvest profits and continue growing, while employees do not lose any purchasing power.
3. Additional measures have to be adopted to improve the quality of employment and avoid the high rate of temporary contracts. The labour market reforms of 2012 reduced compensation for dismissal in the case of permanent contracts and established legal limitations for the use of temporary contracts. Nevertheless, temporary jobs still account for 25% of all employment and the average duration of such contracts has fallen by 12 days in five years, from 62.87 days in 2011 to 50.58 in 2016, according to statistics from the State Employment Service.
Employment flexibility has converted into instability in terms of employment conditions and salaries, rather than the intended improvements in productivity, competitiveness and efficiency with respect to jobs.
In conclusion, an economic policy that strives to achieve a noticeable increase in stable employment has to involve resolving the chronic structural unemployment that Spain suffers from, without basing job creation on the country’s fragile economic growth.