Deep depression

The labor market has gone into a deep slump, which underlies the pessimism now prevailing in Spanish society. The Active Population Survey (EPA) for the fourth quarter of 2012 confirms that last year 850,000 jobs were lost: the number of unemployed now rising to 5,965,000, for an unemployment rate of 26 percent. This destruction of employment is the second greatest since the crisis began — after the 1.2 million jobs lost in 2009 — but more disturbing is the fact that this loss takes place within the framework of an almost unprecedented slump in the active population, which has fallen by 176,000 in the quarter. Many people have lost hope of ever finding a job, and have given up looking, or left Spain. This why the number of registered unemployed has not exceeded six million.

So grave is the depression that on Thursday the prime minister announced an extension of the Plan Prepara subsidy program until the unemployment rate falls below 20 percent. This is a laudable move, revealing both concern and impotence in the face of a problem that ought to have received more attention from the government. It is too soon to say whether the extension signals a new turn in economic policy; but it is a gesture that indicates the government’s degree of concern about the sluggishness in the reactivation of the economy, and the failure of its predictions.

The forecasts for employment in 2013 do not promise any improvement. In the first quarter, moreover, the unemployment rate will probably rise by a further percentage point to 27 percent; and it cannot be ruled out that, during the course of the year, if there is no upturn in investment and activity, it may reach 28 percent. The principal reason is that the cutbacks in public and private spending have yet to touch bottom, and thus we may expect further implementation of adjustments in employment under the new mechanisms governing the labor market. Unless a change of trend (so far invisible) takes place in 2013, unemployment in Spain will reach levels typical of long-lasting depression.

With an EPA as bad as that of the fourth quarter, those responsible for economic policy would do well to reflect on some basic questions. The most immediate is how much of this massive destruction of employment, unusual even after four years of recession, can be attributed to the labor market reform enacted by the government.

The reform is aimed not so much at making the conditions of employment more flexible so as to sustain existing employment, as at facilitating cheaper firing so as to begin a new cycle of growth with lower labor costs. Possibly this prescription may function in the middle term; but its social cost, including a considerable rise in litigation and labor conflict, may well cancel out any public perception of future benefits from the new rules of the job market.

It would be desirable for the government to explain the reasons behind the optimism that in recent weeks has radiated from the Economy and Finance Ministries. It is possible that the economy has indeed “bottomed out,” or that the beneficial effects of reforms (mostly spending cuts) will soon be felt. But these are opaque messages, short on explanation, which the public can believe or not, given their resemblance to mere propaganda. More believable are the forecasts made by the IMF, which show no perceptible improvement until 2014, and speak of a contraction of GDP in 2013 greater than that of 2012.