More spending on the out-of-work

Jobless claims this August were no worse than any other August, given that it is traditionally a bad month due to the expiring of seasonal contracts awarded to cover the holiday period. Although this month’s figure saw an end to a run of four months of falling unemployment, the increase in jobless claims was of a smaller magnitude than in August of last year and indeed those of the past six years. However, spending on unemployment benefits is on the rise, increasing more than five percent in the seven months to July, when the state budget had forecast a drop of five percent.

Thus, the budgetary miscalculation, which we warned about in this paper, is of the magnitude of over 10 percent. A deviation of this size will inevitably have repercussions in terms of the total budget deficit. The Finance Ministry must explain how it plans to correct this, especially given that the number of people registered with the Social Security system (and thus contributing to it) has fallen to fewer than 17 million — the lowest level since the crisis began.

What is worrying about the figures for social spending is that they will get worse in the short term. It is the more costly unemployment payments that have risen of late, in contrast to the optimistic forecasts of the government. To cope with these payments and to cover the cost of pensions, the Social Security system has had to resort to the Contingency and Rehabilitation Fund backed by mutual insurance firms, though it has not yet touched the reserve fund of 67 billion euros. Recourse to this buffer constitutes the sounding of an alarm, alerting us to the challenges ahead regarding the sustainability of the Social Security system.

All these figures inexorably point to the need for renewed emphasis on the productive economy. The fact that macroeconomic debate is now almost exclusively centered on the restructuring of public finances is of no use at all in getting back on the road to economic growth. Industrial policies, the urgent need to define priority sectors, and the quest for greater productivity are all necessary elements, but they are conspicuously absent from the plans that exist so far.

The present stubborn insistence on an economic policy exclusively centered on the reduction of public deficit is detrimental, in particular because it stifles debate on microeconomic policies that would lead to the creation of employment. The option of budgetary orthodoxy ought to give way to a growing interest in measures at the national and European level that lead to an economic recovery.