Is Spain’s Unemployment Really Over Four Million?

The title to this post poses an interesting question I think, since the answer you give to it would seem to depend more on the meaning you attribute to the word “really” than on any consensually agreed objective fact. This is especially the case since Spain itself has at least two “official” unemployment numbers, so the backround to (and reason for my asking) the question is the apparent divergence between these two numbers (one from the national statistics office, and one from the employment office INEM), both of which were given extensive international press coverage recently, with the ensuing “spread” between one reading and the other causing general confusion and even leading some to question the very validity of the whole Spanish “headcount” process.

As we shall see, what we have here is not necessarily a simple “fudging” of numbers, but rather a conflict between two different ways of measuring unemployment, since the two data sets are compiled using different methodologies. That being said, I am not putting the question on the table to offer any definitive opinion of my own, since I think in a country with an informal economy which amounts to over 20% of the total it is impossible to “really” know how many people are actually working and how many aren’t. What I would like to do is try and clarify a bit better what is actually happening to employment is Spain, highlight just how serious the situation is, and sketch out a bit more of the reality which lies behind the headline data.

But before we get into all that, the really important point to get hold of is that in the sort of economic conditions Spain is experiencing it not the actual headline catching base number that matters (4 million, 3.6 million, or whatever), but rather how quickly the numbers are rising. This detail is important, since it is the rate of increase in unemployment that ultimately determines the rate of increase of two of the other important indicators for the Spanish economy – the volume of non-performing loans and the size of the government fiscal deficit.

More, or Less, Unemployment?

Well, the cat really was let out of the bag for the great Spain unemployment “non-debate” (since amazingly none seems to have ensued) by the publication of last months quarterly labour force survey (by the national statistics office, the INE), which showed that number of unemployed in Spain had almost doubled over the last twelve months, rising to more than four million by the end of March, and sending in the process the jobless rate soaring past 17 percent level. This rate is, of course, far and away the highest in the 27-nation European Union, where the average was 8.3 percent in March according to Eurostat data.

The INE release was alarming, however, not only for the high headline figure (which was, of course, scary), but for the speed with which the survey showed Spain’s jobless rate rising – from 13.91 percent at the end of December to 17.36 percent three months later (see the dramatic surge in the chart below, based on the INE data).

Thus an additional 802,800 persons were estimated to have lost their jobs in the space of three month, bringing the total number of unemployed to 4.01 million – a rise of 1.836 million over 12 months. The percentage of the economically active population who were unemployed was the highest in Spain since the fourth quarter of 1998, when the level hit 17.99 percent, and the total number of unemployed is the most since at least 1976, when comparable data were first recorded.

Of course, the political theatricals surrounding the release were vivid, since the new economy minister Elena Salgado was quick to declare “We will do everything possible to reduce these unemployment numbers, and of course will guarantee unemployment benefits for every person in this situation.” How exactly the Spanish government is going to be able to honour this latter guarantee as we move forward (since benefits are exhausted after a maximum of 24 months) is just one of the many puzzles which currently perplex day to day observers of the Spanish economy, since the number of longer term (and thus unfunded) unemployed rises by the month, while government revenue is steadily shrinking along with the Spanish economy.

Naturally Salgado, who replaced former EU commissioner Pedro Solbes in the post a little over a month ago, was quick to add that the fiscal stimulus measures being implemented by the government of Prime Minister Jose Luis Rodriguez Zapatero would begin to take effect the very same month (April), to the evident skepticism of many more seasoned observers.

In hindsight, however, it is not that hard to imagine why Salgado could be so confident in predicting an “easing” in the unemployment level, since she (like me) knew only too well that the next set of employment numbers from the employment office (INEM) were due to be published only a week or so later, and the headline catching number they would report was bound to be a lot lower, since they have been all along as the methodology on which the INEM data is based (labour office signings) is quite different from the labour force survey data.

And so it was, the INEM release came and went, in the process taking in at least some of the international press corps – the Financial Times’s Victor Mallet, fort example, felt able to report that:

“The rise of Spanish unemployment slowed markedly in April and consumer confidence increased for the second month running to return to the level of a year ago, according to official figures released on Tuesday. Registered unemployment rose by 39,478 people or 1.1 per cent – a third of the rise in the previous month – to reach 3.64m, the labour ministry announced. It was the 13th consecutive monthly increase.”

“We might already be seeing the impact of the crisis wearing off,” said Elena Salgado, finance minister, insisting that spending measures had “begun to bear fruit”.

Now what we have here is a rather judicious use of fact, (which should not surprise us since this is, after all, the world of politics) since while it is certainly true to say that the headline unemployment only rose by 39,478 between March and April, following much larger rises between January and February (and February and March), there is one other little detail we need to think about here, and that detail is Easter (and the fact that tourism is an important part of Spain’s services sector), and that Easter fell, of course, in April. So a more valid comparison might be the year on year one (with April 2008), and here we find the annual rate of increase (55.86) was not that much lower than the one registered in March (56.69%, see chart below), and certainly the difference was hardly sufficient to claim that the “rise of Spanish unemployment slowed markedly in April”.

In fact it is the case that a number of indicators in Spain and elsewhere did improve in the spring, but I would suggest that there is as yet no special evidence that Spain’s economy is moving out of recession, or even that the government’s “crisis” measures are having anything like the impact they ought to be having.

Spain’s consumer confidence index did indeed (like the sun) also rise – to 61.9 points in April from 53.7 in March, according to the Official Credit Institute (ICO). In fact, the index hit a record low of 46.3 last July, and has been rising steadily since, but to put things in persective we should bear in mind that the ICO themselves consider that any reading under 100 means that Spanish consumers are feeling “pessimistic”, so perhaps we should say that they are a little bit less pessimistic at this point (although as political spin that doesn’t sound quite the same, does it?). Indeed, if we look at the chart for the sub-indexes (see below) we will see that the lions share of the improvement is still in the expectations component, which really means that people are still hoping (like Elena Slagado) that things will start to improve sometime soon. Like Charles Dicken’s Mr.Micawber, Spain’s consumers and government are, it seems, always to be found “waiting for something or other to turn up”. …

Two Different Measures

Spain’s Economically Active Population Survey forms part of an EU wide standardised system of measurement, and, unlike the INEM signing measure, is a sampling-based survey whose results are published quarterly in Spain. As of 1999, however, the EAPS became a “continuous survey”with interviews (whether in person or by phone) being conducted throughout each of the 13 weeks in each quarter. Thus the EAPS results are in complete harmony with the European Union Labour Force Survey and indeed their findings are published by Eurostat on a monthly basis, even though, curiously, nobody seems to publish this data inside Spain on any sort of regular basis. However, when the latest EAPS data was published, I (for one) was curious to know what it was exactly that lay behind the sudden surge that seemed to have happened in March, since I had been followingmonthly Spanish unemployment via the Eurostat releases as well as via INEM. In fact, what I really wanted to know (taking the data as valid, a posture I normally adopt unless there is really good reason to think the contrary – as in the case of the Spanish Housing Ministry house price data, for example) was whether there had been a sudden (and inexplicable, since it fitted in with none of the other data I was seeing) surge in March, or whether there had been some sort of data revision (not a problem in itself, but it would be nice for somebody to explain these things) . I mean the INE is perfectly entitled to revise its earlier estimates, but if we are to attribute some kind of value and significance to the data we are served up then we do really need to know something about why it takes the form it takes, and especially when it is so surprising.

On checking, what I found was that there had indeed been a revision to the whole data set, and that the revision went back to last October (I show in the chart below the earlier unemployed numbers and for the new “revised” ones – in red). So we didn’t have a sudden surge in unemployment, and in fact unemployment had always been rising at a slightly faster rate than had been being estimated, but the big the question is why? Something has obviously changed, and they atre picking up now something they weren’t picking up before, the question is what? It would be nice to know, or do policy makers in Spain simply like to make their policy blindfold, or with all the lights turned off?

One very big longshot of a guess here would be to do with the informal economy, since evidently one (little mentioned) by-product of the present crisis (generally, not just in Spain) will surely be that more and more economic activity is being forced “underground” and into the informal economy. So has the rate of labour displacement now accelerated in informal jobs, and is this what we are picking up now that we weren’t before?

Certainly the survey found unemployment to have risen very rapidly among Spain’s migrant population, far more rapidly than among native Spanish workers, and migrants are, of course, disproportionately represented in the informal economy. In fact 28.39 percent of the migrant population were found to be unemployed in the first quarter of 2009 as compared to 15.24 percent for Spaniards. Thus, while the number of employed Spaniards decreased by 546,500 between January and March, the number of employed foreign nationals decreased by 219,500 persons, proportionately a much more rapid rate of job loss.

The number of registered foreign residents in Spain shot up from 500,000 in 1996 to the current level of around 5.2 million, with migrants mainly coming from Latin America, eastern Europe and north Africa. Many of these workers, of course, came to work in Spain’s booming construction industry, and with firms now shedding workers at such a rapid pace, the low-skilled jobs typically occupied by immigrants are amongst the hardest hit, especially since migrants depend much more on being in employment than their Spanish counterparts. This simple fact is reflected in the comparative activity rates, which are 77.99% for the foreign population and 57.61% for the Spanish population. As a result, in the first quarter of 2009, 13.97% of the total employed persons were foreign nationals. The difference between the two activity rates (over 20 percentage points) largely reflects the differences in the age structure of the two populations, which is one of the reasons why, for example, with such a rapidly ageing population Spain could have considered itself fortunate to have attracted so many potential social security contributors. The tragedy is that in order to do so Spanish society had to mount this ridiculous economic boom bust scenario.

Indeed, one of the key questions associated with the present Spanish crisis is what exactly the fate of this large immigrant population will be. In particular, how many will stay and how many will leave (remember that in the short term these migrants need employment, which Spain’s economy now finds it hard to offer, while in the longer term Spain’s pension system needs the contributions these migrants can pay, and the stock of one-million-plus unsold dwellings also suggests the country badly needs all the population it can get, if the housing market is ever to recover).

Fortunately not all Spain’s statistics prove to be as hard to interpret as the unemployment numbers, and the INE does keep a monthly record of net migrant flows (see chart below). The inward flow remained reasonably strong during 2008, but in 2009, the inflow has reduced significantly, while the outflow has increased, with the result that we are very near a historic turning point, where more people might start to leave than actually enter. Monitoring the future evolution of these flows will be fairly important, since whether the Spanish authorities recognise it or not, this is now one of the lead indicators for the Spanish economy.

Employment In Decline Since June 2007

One of the key features of the present economic crisis is the way in which Spain’s previously dynamic job creation machine has now moved over into almost complete reverse gear. What we have at present is better called a “job destruction machine”, since the number of employed in the first quarter of 2009 was only 19,090,800 – 766,000 less than in the fourth quarter of last year, and 1,311,500 less than in Q1 2998. Year on year employment has fallen by 6.43%.

The number of wage earners was down by 465,100 quarter on quarter, and hit 15,843,100. Year on year the number of wage earners is down by 974,400 persons. The number of wage earners with a permanent contract, on the other hand, rose by 63,400 persons during the quarter, while wage earners with temporary contracts dropped by 528,500. The temporary employment rate was down to 25.41% of the total active population, a decrease of 2.52% compared with the previous quarter.

Employment was down in all Spain’sAutonomous Communities, but the greatest decreases were recorded in Catalunya (168,800), the Comunitat Valenciana (120,900) and the Comunidad de Madrid (107,000). The economically active population has, however, continued to grow throughout the crisis, and has now reached 23,101,500, up by 36,800 compared with the previous quarter. The activity rate was 60.15%, that is, one hundredth more than in the previous quarter.

Heading For The Budget From Hell?

One of the key questions I will now consider in my coming posts is the extent to which Spain could be sliding uncontrollably towards a series of harsh budget cuts just like those which have recently been forced on another former euro zone high-flyer, Ireland. Ireland’s growing fiscal deficit and increased exposure to bank losses lead its government intervene in the housing market last month, and at the same time forced them slash spending and hike taxes to reassure investors and the European Commission as to its long-term solvency. The budget which followed was what critics dubbed “the budget from hell”. Spain is already fuelling the economy with one of Europe’s biggest fiscal stimulus packages, and these are largely being paid for by public borrowing. Like Ireland, Spain is already earmarked by the EU Commission for an excess deficit procedure, and continuing deficits and additional bank bailouts could lead to a massive jump in national debt.

Spain’s recession may be currently be somewhat shallower than the one facing Germany’s export dependent economy, but most observers agree that the Spanish version is likely to last a good deal longer than those in most Euro Area countries. The International Monetary Fund have already said that Spain faces a minumum of two full years of negative growth, with the economy contracting 3.0 percent this year and 0.6 percent in 2010. And the numbers could of course be significantly larger, indeed I am sure they will be, and especially in 2010. Unemployment is expected by the IMF to rise to over 20%, and such a level is now virtually guaranteed. The question is not whether we will reach 20%, but how much above it we will go, and the answer you give will, of course (and returning briefly to the question I ask at the start of my post), depend on which version of the current unemployment data series you take as your point of reference. My own feeling is not (and on either series) when we pass 20% of the economically active population, but how near to 30% we finally see.

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About Edward Hugh

Edward 'the bonobo is a Catalan economist of British extraction. After being born, brought-up and educated in the United Kingdom, Edward subsequently settled in Barcelona where he has now lived for over 15 years. As a consequence Edward considers himself to be "Catalan by adoption". He has also to some extent been "adopted by Catalonia", since throughout the current economic crisis he has been a constant voice on TV, radio and in the press arguing in favor of the need for some kind of internal devaluation if Spain wants to stay inside the Euro. By inclination he is a macro economist, but his obsession with trying to understand the economic impact of demographic changes has often taken him far from home, off and away from the more tranquil and placid pastures of the dismal science, into the bracken and thicket of demography, anthropology, biology, sociology and systems theory. All of which has lead him to ask himself whether Thomas Wolfe was not in fact right when he asserted that the fact of the matter is "you can never go home again".

2 thoughts on “Is Spain’s Unemployment Really Over Four Million?

  1. Hi Edward,

    Whereya bin?

    I continue to maintain that Spanish unemployment figures bear only the most tenuous relationship to reality. They are good for knowing the direction of the trend, but are beyond useless as hard numbers.

    Take Malaga province, currently sporting a 27% unemployment rate. At its lowest point in the housing boom, it managed to drop to about 11% – all the while employing loads of undocumented foreigners and drawing workers from all over Andalucia and paying them wage plus lodging. This number would represent full employment in a province in which you can drive from corner to corner in an hour and half – including crossing the capitol. Do you believe that statistic? But the increase of 250% may be credible and provide a working figure, if you can guess at the full employment rate.

    The official version is just a sideshow distraction in this country.

    One has to wonder, given deficits and funding needs and the like why the Spanish 10 year yield spread to the bund is currently +60 bps. France +23. Netherlands +18. During the current realignment, following Trichet’s recent policy switch, the most stable EU government bond has been the Spanish, implying that it is the closest there is right now to a euro rate.


  2. Hi Charles,

    “Whereya bin?”

    Oh, here’n there. Having a break, and a holiday mainly, but now I’m back.

    “During the current realignment, following Trichet’s recent policy switch, the most stable EU government bond has been the Spanish”

    Yup. Very interesting all this. And buying cedulas. Well that takes care of one of my earlier worries (the refinancing issue). Post coming soon on this.

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