Spain’s labor market: convergence with Europe?

Javier Carrillo. Professor. Instituto de Empresa

22 March 2004

Latest results suggest that since 1996, Spain’s strong economy has put it on a path where it is now converging with Europe in employment growth, the unemployment rate, youth unemployment and long-term unemployment.

This is, without doubt, very good news - particularly if one considers that our official unemployment figures conceal a significant part of the population working in the submerged economy. What is certain is that in some sections of the workforce - men aged 25 to 54, for example - unemployment rates have already reached 7 percent, equivalent to European figures and fast approaching full employment levels. The same could be said of whole regions in Spain, where the situation is already one of full employment.

This comparison with our neighbors reveals some remarkable differences between the structure of Spain’s labor market and the European market as a whole. Spain has more workers with temporary contracts (30 percent, practically twice the European average) and self-employed workers. Both characteristics reveal a Spanish market that is more polarized than Europe’s, in terms of job security and employment stability. In addition, there is a difference in employment in the services sector, which is less developed in our country, compared to the rest of Europe. This could be disturbing, given the strong relationship between rising employment in the tertiary sector and the overall growth of employment.

Finally, the differentials concerning underdevelopment of part-time work in Spain and the lower activity rate indicate one of the major problems facing the Spanish labor market today: the insufficient incorporation of women into the job arena. The female activity rate in Spain is 10 points below the European average. Putting us on a par with Europe would demand incorporation of 1.7 million people to the working population.

Three challenges

In Spain we face a more complex challenge than achieving full employment, precisely because we are already coming close to this goal. There are nonetheless three facts to consider when examining convergence of Spain’s labor market with Europe’s. These factors should be predominant when designing future employment policies.

In the first place, we are approaching the so-called “natural rate” of unemployment, below which pressure of demand on job markets can generate inflationary tensions, due to rising wage costs. In other words, it is conceivable that we shall shortly reach full employment, combined with an unemployment rate of around 10 percent. How is this possible? The reason lies in a population sector of approximately 1.5 million Spaniards with low employability prospects, due to qualifications, age, geographical and time availability. It seems clear that active employment policies must start with ensuring employability of this group.

Second, it seems wise to switch from quantitative to qualitative approaches to labor issues in Spain. The “new economy,” if we still accept this term, is not compatible with the temporality that reigns in our labor market. The new “adaptable” company requires flexibility in its production, but also builds its success on training, teamwork and the co-responsibility of its employees. All this points to the need to resolve the tremendous disparities in our country’s working conditions. This can only come about through agreements among the various social agents.

Finally, as a nation draws near full employment, the only guarantee of economic growth it has left – apart from technological development – is an increase in its working population. The more workers a country has, the more opportunities exist for generating wealth. In this sense, we must seek new ways of encouraging women to enter the job market, with formulas that facilitate compatibility of their professional and personal lives.

We should not rest on the laurels today’s positive results reveal. We need to pay greater attention to convergence of the structural characteristics of our labor market, rather than merely watching the ups and downs of official figures.

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