Why Spain Can’t Shake One of World’s Highest Unemployment Rates

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Spain’s vicious start-and-stop cycle of bad jobs has become one of Europe’s most chronic economic dilemmas, a problem unresolved by its post-crisis boom.

For Raquel Garcia, that means peak tourist season in the Spanish province of Cadiz is her one shot each year to find a full-time job. “When the summer comes, boom!” the 34-year-old says.

But then the market goes bust, and thousands wait for the season to come around again. At the end of August, Garcia lost the full-time job she’d held for four months as a waitress, leaving her and her son to live off the couple hundred euros in unemployment insurance and subsidies they receive each month. The unemployment rate in the southern province is 25%, among the highest in the developed world.

The situation remains critical despite years of robust economic expansion in Spain and successive interest-rate cuts that have propped up the broader European economy. It’s been masked by a steady decline in the overall euro-area unemployment rate, which has fallen to the lowest level since 2008.

Much of the blame lies in deep-seated domestic problems. The country has the European Union’s highest rate of precarious temporary contracts; the highest rate of high school drop outs and among the highest portions of low-skilled workers. It has one of the lowest rates of mobility, which means Spaniards often stay in cities with few job opportunities.

There are some signs that those structural issues have become more entrenched. Job growth has begun to stagnate and economists say the unemployment rate probably won’t fall much below 12% or so in the coming years.

“It is a dysfunctional labor market,” said Marcel Jansen, a professor at the Autonomous University in Madrid. “We need to bring structural unemployment back to reasonable levels.”

Successive governments have failed to tackle the over-reliance on temporary contracts. The only major, recent attempt to improve labor laws was in 2012, a post-crisis revamp credited with spurring the economic expansion.

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Spain’s new left-wing government has put the issue back in the spotlight with plans to reverse some of those changes. Economists warn it would be better to improve the previous reforms rather than undo them, which could be damaging at a time of slower economic growth.

Spain’s system makes it easier and cheaper to fire a worker on a temporary contract. Around 90% of the jobs created in recent years have been temporary -- one quarter last for less than a week.

The market discourages companies from investing in training, which makes it hard for workers to build up the skills they need to escape the trap of sporadic unemployment.

Some never make it out.

Rosario Rodriguez, 49, has spent her adult life working on short-term contracts, most recently as an assistant in the kitchen and laundry room of a nursing home. Still, she’s never considered leaving her home city of Cadiz.

“When I think about the future, it’s very bleak,” she said, walking out of an unemployment office in central Cadiz city recently. “In cities where there are more opportunities, the rent is a lot more expensive.”

In Cadiz, the problems date to before the 2008 crisis. The province’s once-powerful ship builders have been shedding jobs for decades and the production of Cadiz’s famed sherry wine has become more mechanized, requiring less manual labor.

Some business executives in Cadiz and elsewhere say unemployment is lower than the data suggest because people are working small side jobs in the underground economy.

That might be providing an escape valve for some, but economists say it’s not widespread -- and those people are still likely to be underemployed and not earning much.

For many, the problem is they’re stuck with mortgages that make it hard to leave. Home ownership in Spain is the highest among large EU countries, while the rental market is short on apartments and long on complex and costly paperwork, making it hard for the unemployed to mull a move to a new city.

“There’s not an extensive rental market to facilitate those kinds of moves -- it’s an important impediment to mobility,” said Miguel Cardoso, an economist at Spanish lender BBVA.

Also, it can be difficult in some regional administrations to transfer benefits from one region to another, another disincentive to moving.

Even for those who decide to take the financial risk, it can be hard to figure out the best positions available. Spain has a government-run website for job-seekers but economists say it’s not updated frequently and doesn’t include many of the available positions.

Public employment agencies aren’t as widely used compared with other EU countries. Some Spanish offices, such as in the industrialized Basque Country, have had success training unemployed workers for in-demand jobs.

But those in the less industrialized south -- where unemployment is the worst -- have struggled.

Garcia, the waitress who was fired in August, recently found a job at a restaurant once a week, where she barely earns enough money to pay her bills.

“Cadiz is so rich because it has the ocean, it has the mountains and the food is absolutely delicious,” she said. “But at the same time, it’s so poor.”

To contact the reporter on this story: Jeannette Neumann in Madrid at jneumann25@bloomberg.net

To contact the editor responsible for this story: Fergal O'Brien at fobrien@bloomberg.net

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