The dead weight of unemployment

The government is clinging to the flimsy explanation that unemployment, though it keeps growing, is doing so less intensely, thus finding a pretext to claim that the labor market reform will produce results sometime in the near future. But the present is inexorable.

The unemployment figure registered in the offices of public employment services increased in February by 59,444 persons. The total number of registered unemployed now exceeds five million people, and that of registered contributors to the Social Security system keeps sinking (28,700 fewer last month) into the mire of recession. Claims of improvement are bluntly belied by reality.

The evolution of registered unemployment is a precise indicator of the fact that the labor market is far from bottoming out. Although the internationally-standardized statistic is the Active Population Survey (EPA) carried out by the National Statistics Institute (INE), which shows almost six million unemployed, month by month the official jobless figures confirm the close relation existing between economic growth and employment.

As long as the contraction of GDP continues, and growth rates of more than 1.5 percent are not attained, there is no chance of creating employment, and the dead weight of social costs will keep rising. But, unlike financial costs, the money paid out to the unemployed at least returns to the GDP in the form of consumption.

The composition of the unemployment figures shows, too, that youth unemployment is worsening and that hiring is decreasing (long-term contracts were only 10 percent of the total last month). The diagnosis is very clear: economic policy must be oriented toward restoring growth, because this is the crucial factor in creating jobs. Partial measures, such as reducing the fiscal burden on certain types of contracts, or subsidizing others, are mere sterile window-dressing.

The policy of fiscal consolidation at both the national and regional levels is putting too much stress on social stability. The cost of unemployment may become an unsustainable burden for the public accounts within only two quarters, because it keeps growing in spite of the cutbacks approved by the government in July. It is unlikely that this year will see the achievement of the targeted 15-percent reduction in the cost of unemployment benefits, thus opening another leak in budget stability.

Prime Minister Mariano Rajoy has two options. One is to maintain the fiscal adjustment policy, incorporating sporadic fine changes to convey the illusion of a change in strategy. The other, is to accept that the social cost of austerity is beginning to become unsustainable, and to decide on a real reorientation of economic policy, accompanied with measures to stimulate activity in order for growth to be sufficient to generate employment.

He must make this decision soon, because an upturn in the economy is not going to happen this year and perhaps not in 2014 either. The great probability is that he will not have any margin to reach 2015 with a substantial reduction of unemployment.