Why does Spain continue to lead Europe in unemployment?

The government of Spain – along with unions and employers – celebrated the economic data from the second quarter of 2023. The figures released by the labor force survey EPA are historic: for the first time in history, there are more than 21 million people in employment in the Western European country. Sectors with high added value are gaining momentum, temporary employment remains at a minimum, while the jobless rate fell to its lowest level in 15 years: 11.6%. Still, the final figure is still stubbornly high – it’s nearly double the European average and far higher than North America’s average.

According to data released this past Tuesday by Eurostat – the statistical office of the European Union (EU) – Spain is the country with the highest unemployment rate in the EU. The country suffers from more unemployment than Greece (11.1%), Sweden (7.9%) or Lithuania (7.5%). When compared to those with the best records – Malta (2.6%), Poland (2.6%) and the Czech Republic (2.7%) – Spain lags even further behind. The average unemployment rate among EU members is 5.9%.

The Spanish unemployment rate is also worse than that of neighbors such as France (7.1%) or Portugal (6.4%) – countries with historically turbulent economies. The comparison with other Mediterranean countries is also negative: both Italy and the Balkan countries achieve better records than Spain.

The Spanish proportion of unemployed – according to Eurostat – hasn’t been so low since August of 2008. The minimum record ever reached was in May of 2007: 7.9%. Even at the best time for Spain, 15 years ago, the figure wasn’t exactly low. The positive note for Spain is that, when compared to other EU nations, the gap is narrowing: since the Great Recession (2008-2009), only from December of 2018 to February of 2019 was there a smaller gap than now with respect to the Eurozone.

Spain is also the country in the EU with the highest unemployment rate for people under the age of 25 (27.4%), ahead of Sweden (24.9%) and Greece (23.6%). This is still the best data for Spain since the summer of 2008. By gender, Greece (14%) is ahead of Spain (13.3%) as the country with the highest unemployment among women. Among Spanish men, unemployment is higher than the average: it stands at 10.2%, compared to 8.7% in Greece and 8.3% in Finland.

Why is Spanish unemployment so high?

If Spain has social peace, a growing economy and the best jobs report in 15 years, why is there still such a vast difference between Spanish and EU unemployment rates? “That’s the million dollar question. This has been a constant in our economy for 40 years now… the truth is that I don’t think anyone has really found the answer,” says Miguel Basterra, a professor in the Department of Labor Law and Social Security at the University of Alicante. “After so many years [of] changes in government and [economic] management teams, you’d think that Spain would have already implemented a solution. Or at least, [you’d think that Spain] could have identified the central reason of causality. It hasn’t been possible to reverse the inertia of our labor market,” Basterra laments.

However, this expert points out that – among several possible reasons – the weight of economic activities such as tourism may count for something: “Our economic model depends – to an excessive extent – on sectors that aren’t very resilient in the face of job destruction, such as construction or the hospitality industry. And, although in recent years the political commitment to new production niches and jobs in the digital age has increased, these other historically entrenched sectors continue to occupy a very prominent statistical space… nobody has managed to reverse the magnetism with which they still attract investment.”

In Spain, we work more hours than the most developed European countries, and we do so with less productivity

Arturo Lahera, Complutense University of Madrid

Arturo Lahera – a professor in the Department of Applied Sociology at the Complutense University of Madrid – agrees with this diagnosis and offers additional explanations. He mentions, for instance, that the number of small firms within the Spanish economy carries more weight than in other European countries: “These companies have less productivity, so their benefits are always more limited and their investment rates are lower. And lower investment rates mean less employment.”

This proliferation of small businesses – in Lahera’s opinion – results in other variables that don’t spur job creation: “This organizational culture encourages long working hours. In Spain, we work more hours than the most developed European countries, and we do so with less productivity.” This expert believes that these extensions of the day prevent many workers from accessing the labor market. On top of this, high amounts of overtime go unpaid, while the work is often strenuous. “There are employees who are working more hours than they should – [other people] could be taking those shifts,” he adds. The fact that the companies are small also undermines employees’ negotiating capacity, which makes it more difficult for unions to obtain reductions in working hours or a remuneration (or at least control) of overtime, which would push employers to increase the workforce.

José María Rotellar – the director of the Economic Observatory at Francisco de Vitoria University – also alludes to the low productivity of Spanish companies: “At times, when the economy is doing well, more jobs are generated, but when things go wrong, they’re destroyed with great intensity.”

“Another important issue,” Rotellar continues, “is the high rate of the underground economy in Spain, [which is] above the European average. There are many people who are probably working who don’t show up in the statistics.”

Lahera also points to demography: “For several decades, the birth rate in Spain was well above average, [because of] the Baby Boom generation. We [have] very large generations that the labor market hasn’t been able to absorb.” Given the extremely low birth rate in Spain, the pension system has been squeezed.

Future prospects

The government is counting on the unemployment rate to continue to fall. The good economic data, the incentivization of activities with high added value (thanks, among other reasons, to Next Generation EU funds) and the retirement of the very populous Baby Boom generation are all factors that offer some hope. Prime Minister Pedro Sánchez has set the goal for Spain to reach an 8% unemployment rate, which he classifies as “full employment.” But to speak of full employment – according to the State Public Employment Service – unemployment in the country should be around 4%.

Lahera disagrees with the prime minister’s claim: “Full employment is literally when anyone who wants to work can do so. I could accept – although it would be debatable – that Spain can reach full employment if the unemployment rate equals the European average. Believing that 8% is the maximum that Spain can aspire to is like throwing in the towel at an economic and political level.” The professor stresses that achieving full employment depends on whether or not companies are forced to improve working conditions in order to find employees. “I don’t think that happens with 8% unemployment,” he shrugs.

Basterra believes that – given the new challenges facing the labor market – there are other ways to measure the health of the economy that go beyond full employment. He mentions the ability to tackle part-time work and temporary employment, or boost wages so that they meet the average cost of living. “These other parameters would allow for a more precise assessment of employability problems in specific sectors of the population, [looking at groups] such as women or young people; the classic focus of the active-unemployed dichotomy does not dispel all the [nuances],” the labor specialist adds.

Looking to the future, Lahera predicts that unemployment will continue to fall if there’s no other unforeseen event like the pandemic: “I think that the rates are going to go down slowly. There’s an opportunity to improve the productive model, precisely because of the [injection of] European funds.”

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