The slowing pace of employment destruction

The Spanish economy continues to destroy employment. The September figures for jobless claims, which were released on Wednesday, ended a six-month downward trend, as the number of people officially registered as unemployed increased by 25,572. However, the figure is the lowest for that month since 2007.

This reduced deterioration is a welcome sign. The total number of people registered as out of work with the state Employment Agency as of the end of last month stood at 4,724,355. Meanwhile, the number of people signed up with the Social Security system fell by 22,242, also less than previously seen. Both figures indicate that the downward trend in the Spanish labor market seems to be bottoming out. We are not, however, anywhere near a definite turning point, nor are we close to any significant net creation of jobs.

The quality of the work on offer also continues to be undermined by an excessive number of people hired only on a temporary basis. As the Bank of Spain itself has pointed out, the labor market reform has afforded companies greater flexibility in managing their human resources, accompanied by downward pressure on wages and a higher percentage of workers on temporary contracts. Moreover, the number of Spanish families where all members are unemployed remains at excessively high levels, which is hardly an invitation to complacency.

Precarious employment is certainly not the best foundation for a recovery in consumer spending, or for advancing the process of deleveraging being undertaken by households, and not for that matter either of improving the solvency of the domestic banking sector. The high rate of temporary workers is also hardly conducive to reinforcing in-house technical training programs, which are necessary if Spanish companies are to become more competitive.

External factors

For all these reasons it is desirable that the government refrain from prematurely breaking out the champagne. The generation of false expectations may bring adverse effects far more powerful than the supposed benefits of trying to talk up the situation to economic agents both inside Spain and outside.

The Spanish authorities have to keep in mind that they are heavily dependent on the decisions made by other authorities, fundamentally in the European Union, as well as external turbulence generated by political stability in a number of different countries. It is also desirable to keep a lid on any possible political euphoria when Spain is still the country with the largest number of unemployed people in Europe — far more than when this government took up the reins of the economy.