Spain’s Unemployment Problem

Well, according to a popular urban legend, Spain’s unemployment rate – which is the second highest in the EU after Latvia – is currently running at something just a touch over 20%. Or is it? The unemployment problem I wish to address here is not the one of how to get to grips with actually putting all these people back to work, rather it is that of untangling what exactly Spain’s real EU harmonised unemplyment might be, since, to say the least of it, some strange things have been happening in recent months.

But to start with some consensually grounded facts: The number of unemployed jumped by 286,200 during the first three months of the year – using the not seasonally adjusted labour force survey methodology – and hit 4.61 million or 20.05 percent of the workforce, as reported in the conservative Spanish newspaper ABC on Tuesday of last week. And how did ABC know last Tuesday that the first quarter unemployment rate was 20.3% given that National Statistics Office (the INE) was not due to publish the official figures till Friday. Well ABC knew the number since the figure was “accidentally” posted on INE’s web site for several minutes on Monday. The incident – which is reminicent of the Mr Bean interpolation on the EU Presidency Website at the Moncloa in January – was subsequently confirmed by the INE itself, who issued a statement baldly stating that a technological “incident” had made “certain data” from its quarterly unemployment study visible on its web site.

Of course, in a country as given to conspiracy theorising as Spain is, this “technological incident” has lead to all sorts of speculation – that, for example, statistical staff at the INE (in a similar fashion to those employees in the statistical office in Argentina’s Mendoza province who rebelled against Nestor Kirchner’s use and misuse of inflation numbers) had simply gotten tired of seeing their data massaged for political objectives, and wanted to get the politically sensitive 20%+ number published before it was changed. Indeed none other than Economy Minstry Secretary of State José Manuel Campa had to come out publically to deny that anything untoward had happen.. As far as the Ministry was concerned there had been no leak. “The Employment Survey data was not leaked”, he said “there was an error. There is absolutely no evidence that the information was leaked. Spanish insititutions are quality ones. To create doubt about this seems to me to be a major act of irresponsibility. I am convinced that mistakes can be made.”

Unsurprisingly, there are many who remain unconvinced. “It is becoming clearer with every passing day that what happened on Monday was not an accident, but was a leak to try to ensure that the data was not manipulated even more,” declared the conservative newspaper Hispanidad. “Fortunately”, they went on to say, “in our statistics office we still have professionals who are not willing to accept just any old methodology” .

In fact, just this week the mystery (or war of leaks) deepened even further, since data apparently leaked on Saturday by government sources to the EFE news agency showed that the number of unemployed registered at government agencies (a different methodology) fell by a non seasonally adjusted 24,000 in April. The data was not scheduled for release until tomorrow (Tuesday).

Now a lot of this would be none-to-worrying, and might seem like a lot of the typical to-ing and fro-ing you tend to associate with normal political debate about unemployment, except, except…. well except that something rather strange does actually seem to have been happening, and except that, well, you know, there is rather a lot of concern around about the level of Non Performing Loans in Spain’s banking system, and the econometric equation used by both the Bank of Spain and the IMF (more on this in another post) for their stress tests, well, the assesment is based on projections about Spain’s actual unemployment rate. So there is more than just votes at stake here.

What, then, has been going on? Well the first thing that I find strange is the fact that the unemployment numbers do not really fit with other indicators we have, like the number of people affiliated to the national social security system – which is, if you want, a measure of the number of people actually employed. Basically since last September, when you could say that the funny things happening with Spain’s unemployment data got even funnier, a seasonally adjusted 189,000 people have stopped contributing to the social security system (by March, see above chart). This represents something like 1.06% of total employment, so how the hell, we might like to ask ourselves, can estimated unemployment have only risen by 0.1%? Especially when, and according to the Labour Ministry’s own data, the economically active population has risen by a seasonally adjusted 35,000 over the last six months. Something, somewhere just doesn’t fit here.

Especially if you look at the chart I have made of the Eurostat data as it now stands, where it seems unemployment has been completely flat for several months.

Now, since I have been very irritated by this whole situation for some time now, with the data filed at Eurostat being constantly revised, I decided to do that really tedious and tiresome thing, and go back through all the relevant press releases from Eurostat. If you want to check for yourself you can go to this page, where you will find the entire file, complete with the relevant links.

Here, for the sake of convenience, I will just produce two extracts, the latest (March) data, and the data for November 2009. (Please click on images for better viewing).

Now, as can be seen in the November file (below), unemployment had been rising steadily at a more or less even pace since the spring, and had hit 19.4% by November, which made the sort of predictions that I personally was making for unemployment going up towards the 25% mark in 2010, if not completely scientifically valid, at least not simply wild speculation.

But if we now move on to the March 2010 file (below) we will see that the 19.4% level was never actually hit (in theory), and that unemployment is supposed to have peaked at around 19% of the population, and is now, of course, about to turn down.

Of course, they may have some problems with the seasonal adjustment methodology, but in which case they should say so. On the other hand, the social security affiliates data suggests a constant employment loss of around 35,000 a month for the last several months, and that the bloodletting continues relatively unabated, which means Spain is experiencing a “real” increase in its unemployment rate of around 4% a year. And if you then apply this input to a simple linear regression model based on earlier Spanish data (which gives a factor of 0.66 to apply to this percentage rate of increase), then we might reasonably expect the rate of distressed loans to go up by something like 3% this year.

The IMF Global Financial Stability Report on the other hand, using face-value unemployment data (see this file page 54) projects NPLs at commercial and savings banks will peak at 6.3 percent and 6 percent, respectively, in 2010:Q3, and then come down to 5.1 percent and 5 percent, respectively, by the end of 2011. That is really the importance of this whole debate, since (assuming other things to be equal, which in fact aren’t but we’ll see about that another day) if unemployment hasn’t yet peaked, then NPLs won’t peak in Q3 2010, or anything like it, as the authors of the IMF report themselves point out in their adverse case scenario.

Now, there is another possible explanation for the mismatch between unemployment and job loss, and it is one that I have explored in this post here in my blog on the Spanish newspaper Expansion: it could simply be the case that people – both young Spanish nationals and migrants – have left Spain.

This entry was posted in A Fistful Of Euros, Economics: Country briefings by Edward Hugh. Bookmark the permalink.

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".

39 thoughts on “Spain’s Unemployment Problem

  1. Possible answer to Tom: Spanish people are not very eger to move, in comparison, for example, to USA or more northern European countries. Maybe it is something cultural.

  2. Another explanation may be that people just tend to give up on registering as unemployed, since it has no effect whatsoever unless – and as long as – one gets unemployment subsidy.

  3. Unemployed people that are doing somekind of training or even applied for some kind of training are not counted as unemployed. This way you get around half a million people out the numbers

  4. Indeed; it’s a well-known trick in Portugal too. I know of people who got several ‘placements’ like that in a row; one for gardener, one for security guard, one for carpenters assistant and so on. half a year each they’re out of the numbers, then they’ll back because no gardeners are sought….

  5. The Spanisg Government is constantly lying about those figures. I live in Spain, in a touristical area. Unemployment is at LEAST 20%. That’s officially registered unemployment. People that are on unempl. benefits. However many employers in the Tourism and Construction branches don’t like paying their taxes over employeés hence many (Spanish)workers have to accept jobs without a contract, and thus are not counted. The Government is very aware of this “culture” and keeps its mouth shut. I’d estimate unemployment at LEAST at 25% already and still growing. Right now many employers import cheap people from Romania,Bulgaria and even China to have them working here, often illegal,without a contract.As long as Spain maintains their old culture of corruption,theft and lies this country will follow Greece without any doubt. It is not about if but rather when…..

  6. Hi Don,

    You are right that the idea of a single labour market means that Europeans should feel free to move about from one country to another looking for work. The thing is, we don’t have a central fiscal treasury to handle the debt imbalances created. If Spain’s population drops by 3 million, for example, who pays for all the extra unwanted houses, and with 3 million less people to pay down the national debt. It is at this level the problem exists.

  7. I do not really think they are lying. The very same definition of unemployed does that work…
    Anyway, I don´t know why so much enphasis on unemployment. I think unemployment is a secondary variable. What really matters is output level. Obviously, there is no perfect correlation between them…just notice what is happening. What we need is more coverage for unemployment, higher unmeployment benefits.

  8. The output is low due to low labor productivity and second there is too little input. There are lack of entrepreneurs in Spain. Try to start your own company.As a begin you have to pay a ship load of taxes,burocracy,licenses etc.Due to lack of new businesses there is big lack of quality jobs. Hence the average wage is eur 1200 in Spain and loads of academically formed youngsters cant find an appropiate job in Spain. Spain only needs waiters, cleaners and more shitty jobs. The good jobs are done by the 5% wealthiest and the only way to get a good job is thru friends politics, or the wealth of your daddy. Moral corruption. Spanish do not contract on merits but on who you know! Raising the unemployment benefits is a nice idea but rediculous. We would be in default in 6 weeks!

  9. Peter, did you calculated it?
    And moreover, where do you think unemployment benefits come from? I can accept other reasons, but not that one.

  10. Its being paid by the few that are still working in this country. Raising the benefits say with 25% and apply this to 4 mln+ unemployed! Besides if you raise the benefits the retired will want to have a raise in their miserable state pensions.
    Are you a Zapatero aficionado? He ruined this country with his socialist Govt. Look at Greece, Portugal, Ireland: all socialists in charge!

  11. “Its being paid by the few that are still working in this country”.
    That is absolutely false, or at least, very inexact, misleading.

    “Look at Greece, Portugal, Ireland: all socialists in charge!”
    You disqualify yourself.
    Who has the responsibility for the greek problems? It was the previous government who placed Greece in the actual situation…and it was not a socialist one.

  12. Nice seeing you stepping in the trap.You just are a %%&/%$% socialist!! Just as I thought.That disqualifies you per definition!Go and ashame yourself ***hole

  13. You are a truly punk.
    What the hell are you talking of? Do you think that I think that I have something to hide?
    You are a joke in yourself, and you deserve some laughs.

  14. I also live here in Spain. Spain’s economic situation is part of the global problem but somewhat more aggravated. The Spanish economy was so dependent on the property industry that when it collapsed everyone and every business that fed off this industry was affected. Add the country’s business, cultural and political structure to the equation and you have the current situation. What I find more shocking is that Spain, as great a country as it is, has an unemployment rate just behind Latvia! The politicians here better get their act together, something I quite challenging.

  15. Very right Richard, but socialists like Carlos will never ever understand this. Even calling me a punk when I tell the hard thruth. On the other subjects in my first post I don’t hear him. If I knew on before hand he was a Zapatero lover I woudn’t have even reacted anymore. The current Spanish government is one of the most incompetent trhe country ever has. Poor Spain as I love my country….and Carlos present yourself at the Moncloa with all your wisdom. Perhaps they will hire you for eur 235k a months like Pajin!

  16. Nayway Carlos I wont continue this useless conversation anymore in this thread.If you want to keep arguing call me at 971 396222, si tienes cojones!

    Hasta la vista!

  17. Edward is up a notch in his comedian career. He says:

    “Of course, in a country as given to conspiracy theorising as Spain is, this “technological incident” has lead to all sorts of speculation.”

    and then points us to read his blog in spanish in a newspaper that belongs to El Mundo editors. An antigovernment newspaper famed for still maintaining that the bombs that killed 191 people in Madrid in 2004 were planted with the help of the basq separatist ETA, the knowledge of the police, and the aim to help the incumbent government win the elections. He really seems to be blending so well that has managed to publish his conspiratorial theories in the very epicentre of spanish conspiranoids.

    Spain received one in every two immigrants to europe in the last decade and produced one in two jobs in europe. Now the labor market has seen most (not all) of the jobs created since 2004 been destroyed. Those people leaving the country are not only spaniards, they are also immigrants that have either decided to go back to their countries or to explore a new one.You know Edward, that might be your case some day.

    By the way, last month not only there were 24.000 less unemployed people, there were also 55.000 more people in the social security registry. If one figure goes down and the other up, that makes the change in unemployment percentage go down faster. As was the case.

    It puzzles me the question that Edward states in one of his replies, he says:

    “If Spain’s population drops by 3 million, for example, who pays for all the extra unwanted houses”

    What? Is there a house in Spain that someone is paying for, because I left to live in England ten years ago? Where is that house? Can you point me the address? I would like to visit it in my next holidays.

  18. It is funny how loonies like Peter Ris agree in so many things with Edward. It’s a pity about Peter’s lousy manners but the bottom line is the same argument.

  19. What a disgusting behavior that of Peter Ris. I had never seen anything like that in this blog and I certainly expect that it doesn’t become the norm in here.

  20. I agree with Jeronimo. It’s all a conspiracy against Spain organized by dark neo-fasicst forces. Spain is of course in tip-top shape, the 20% unemployement being a blip or mere flesh wound. As Zapatero so cogently argued today, Spain is turning the corner. He has been very consistent in arguing that for the last year. My fear is what is round the corner.

  21. mark,

    you should book some lessons in reading and understanding what is written, because I have not said what you put in my mouth.

    Have you heard of the ‘straw man fallacy’?

  22. I quote:

    (Edward) then points us to read his blog in spanish in a newspaper that belongs to El Mundo editors. An antigovernment newspaper famed for still maintaining that the bombs that killed 191 people in Madrid in 2004 were planted with the help of the basq separatist ETA, the knowledge of the police, and the aim to help the incumbent government win the elections. He really seems to be blending so well that has managed to publish his conspiratorial theories in the very epicentre of spanish conspiranoids.

  23. So? Where is the (I quote) “conspiracy against Spain organized by dark neo-fasicst forces.” I just point out that Edward says that spaniards are prone to conspiracy theories and inform that he does indeed work in the spanish conspiranoic mothership.
    Just a couple of weeks ago they opened first page, five columns, with declarations from the main convict of the crime, the person that sold the explosives for the bombings, changing his statement for the nth time. Next day he changed it again denying what he said the previous day. This person is already convicted, I repeat, and is on record saying “If El Mundo keeps paying I’ll sing la Traviata for them”.

  24. Jeronimo, I suggest we leave it.

    I have quite a lot of sypmathy with your position that Spain is being taken to the woodhshed even though its govt debt to GDP ratio is lower than Germany’s and France’s. That is a fair point. However, the v high level of corporate and individual debt, coupled with v high unmployement, a ballooning deficit, a v bad current account deficit and lack of political leadership is a very dangerous cocktail.

    The real question is what Trichet will do. i think hhe’s gonna monetize debt, following in the footpsteps of the uK and the USA, and he’s also gonig to open to spigot to banks again.

    Everyone’s kicking the can down the road. See what gold thinks about that.

  25. Thanks for agreeing on some of my points, I am sorry to disagree with you in others. Spanish private debt is not comparatively higher than that in France or Germany neither. It is a misconception as the one regarding public debt. Here you have a list of countries by external debt:
    You can order them per capita or by GDP and will find that not only Germany and France are above Spain in that list but also many other european countries. Deficit in public accounts in Spain follows a number of years with superavit. It is simply a decision based on historical economic science to increase public expenditure in times of recession. And even with this spanish deficit is not the biggest in Europe nor it is expected to be. On the contrary. In this article you can find the link to the European Commission Spring Economic Forecast and find out more:
    You will also see there that spanish current account deficit has halved from 2008 to 2009 (most if not all of spanish GDP growth comes from its external sector) and it is forecasted to decrease even more.
    High unemployment is the most difficult data to rebuke. I will just say that Spain has had higher unemployment and has become the fastest growing economy in europe in that circumstance in the past. As I said before (first of my comments) Spain received half of the immigration to europe and created half of the jobs in europe in the last decade. The destruction of jobs has been massive, but there is still more people working in Spain today than there was in 2004. Not many countries in Europe can say that.
    Regarding lack of leadership I do not really know what are you talking about. Zapatero has passed every single law or decree that he has sent to parliament. He does not govern in a coalition as Merkel, for example does or as Cameron or Brown will have to. He has two more years of mandate with a clear majority.
    I agree with you that that is what Trichet is going to do. And I also think is the best thing to do. I’m not sure if it is a pity that he has not done it a week a go. Maybe this way he will slam the door on more short-traders fingers. Which is nice.

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