A year of depression

Unemployment in Spain is now a growing social threat, as well as a grave economic problem. Official data for November indicate that there are almost 60,000 more people unemployed; that the destruction of jobs has not stopped, in spite of the two years of recession and economic stagnation; that the Social Security system is fast approaching a situation of annual deficit, due to the persistent decline of its income; and that, to make matters worse, the number of jobless persons without unemployment insurance is rising day by day. This pincer movement affects both the public deficit (if there is no surplus in the Social Security system, the public deficit's deviation from objectives may worsen) and the chances of recovery.

The next government faces, then, a gloomy prospect in employment, none the less worrying for being predictable. Given that during 2012 the budget cutbacks will intensify, to comply with the deficit objectives for 2011, 2012 and 2013, there is no other reasonable forecast for next year than recession, more or less prolonged, but real for at least two quarters. In consequence, unemployment will go on rising (remember that unemployment in terms of the active population survey is approaching five million) and the spiral of stagnation will set in, where unemployment and weak demand impede recovery. The possibility of reaching an unemployment rate of 23 percent is not out of the question; nor is it, unfortunately, a very distant prospect.

The question for the incoming government is that of finding a way to increase employment or, more modestly, to limit the destruction of jobs. From the moves made by Prime Minister-elect Mariano Rajoy, so far as they are known, it may be gathered that his priority strategy will consist in proceeding to another reform of the labor market, whose main lines have been conveyed in a peremptory manner to unions and employers. It not necessary to go too far out on any limb to conclude that what the new prime minister and his shadow cabinet are planning consists in forcing a quick failure of these social agents, in order to then legislate with total freedom.

But the important aspect of Rajoy's initiative is that, probably, the new versions of norms on hiring and collective bargaining will produce no appreciable effects on the labor market, either in themselves or in combination with the fiscal incentives aimed at persuading companies to create employment. Internal demand is profoundly depressed, and it is in this ambit where action is required.

The strategy of the Popular Party (PP) seems to consist in an all-round reduction of labor costs, in the belief that this reduction, together with fiscal incentives for the creation of employment and new public boosts artificially applied to construction, will soon create new jobs. Yet this model leads to precarious employment, and to a structural weakness of growth. It would be welcome if the PP were to clarify as soon as possible whether this is the case; or if not, what other sort of growth it advocates.