Rafael Pampillón. Professor. IE Business School
22 April 2015
Spain is a country of emigrants, and will continue to be for the time being. Although this is a difficult situation from a personal perspective, it can have a positive outcome in economic terms.
It’s no secret that Spain still has a significant surplus of workers. The unemployment rate is still very high in this country, with some 5.5 million people registered as looking for work. The consequences of the economic crisis are many and varied, but the latest data released by the National Statistics Institute (INE) reveals the impact on two specific areas: wages and emigration.
Emigration is rising
The register of Spaniards resident abroad published earlier this year confirms that more and more people are leaving Spain to look for work abroad. On January 1 of this year, almost 2.2 million Spaniards were resident overseas, a 6.1 percent increase on 2014, equivalent to a further 125,000 people. These are men and women who have bothered to register with the Spanish consul in the country or city where they are located. To this figure we can add a great many more Spaniards looking for work in other countries who for one reason or another have not registered with the authorities, and who therefore do not appear in the official figures.
Emigrants, the majority of whom are aged between 25 and 45 and are jobless, can be said to have a positive effect on the Spanish economy for different reasons: they’re a kind of safety valve helping to relieve some social tensions, while lowering the unemployment statistics. At the same time, they are saving the government money by not claiming unemployment or other benefits, while preventing further deterioration of salaries and working conditions. It’s also likely that the experience they gain working aboard will generally raise their employability when they return to Spain. Finally, these overseas workers are in many cases sending remittances back home to their families.
To these Spaniards need to be added the continuous exit of foreigners who have been returning to their home countries or other locations in the hope of finding work since 2009. This has resulted in a net reduction of some 800,000 people from the Spanish labor market.
In short, Spain is once again country of emigrants, and looks likely to remain so into the near future.
Wages are falling
Despite so much emigration, the number of people without work in Spain continues to be far too high, and is one of the main reasons why wages are so low. The INE’s figures confirm that in the last quarter of 2014, the labor costs per worker, rectified for seasonal and calendar effects, fell by 0.2 percent on the previous quarter, adding up to a five-quarter decline, and higher than the 0.1 percent fall of the third quarter. Fortunately, consumer prices have also dropped, meaning that wage earners have not lost any purchasing power. In other words, prices have fallen faster than wages, as shown by the Index of Service Sector Prices, also just published by the INE, with a -0.3 percent annual variation.
It should not be forgotten that this fall in goods and services prices is also reducing production costs, which is helping Spanish exporters: our products are increasingly cheaper than imports.
Thanks to these cost and price adjustments, the Spanish economy is recovering: GDP growth is now at around 3 percent a year, jobs are being created (some 440,000 new positions in 2014), consumption is increasingly strongly, and investment in capital goods is very high.
Investment is increasing
It may seem paradoxical, but both immigration and wage moderation are improving employment, while boosting business confidence at home and abroad in the Spanish economy. The INE’s figures show that investment in capital goods grew by 12 percent in 2014 on the previous year, indicating that the business sector is optimistic about continued economic growth.
At the same time, there has been a significant increase in foreign investment in Spain. In early March, the Spanish Economy Ministry reported a 10 percent increase in productive foreign investment over the course of 2014 compared to 2013. This is another indicator that the adjustments made over recent years are helping to increase confidence within the international investment community in our economy, which in turn is helping to generate more growth and jobs.
Alongside these significant increases in investment, we are also seeing an important rise in consumption. In other words, internal demand and investment are beginning to expand rapidly, such that they could even set off the typical external imbalances that occur during growth cycles. Fortunately, the fall of oil prices is reducing the cost of oil imports, while at the same time, the depreciation of the euro is raising the price of imports from outside the single currency zone. At the same time, it should be borne in mind that during the crisis our businesses have carried out a major export drive while simultaneously substituting imports with domestically made products.
Economy Ministry data published in March shows that in January, imports of goods fell by 3.6 percent year on year, and that as a result, the trade deficit was cut by 8 percent over the same period. This is contributing, for the moment, to a continued current account surplus.
The need to continue with reforms
Future growth should continue to be based on internal demand, but also on increased exports. More economic growth and job creation, along with balanced foreign trade, far from making us complacent, should drive us to improve our productive structure and make it still more competitive. To do this, we need to continue reducing costs, changing labor law and the pension system, improving the efficiency of public services, reducing the size of the public administration, reforming the energy sector, overhauling taxes, and investing in science and technology and training.
If we continue along this path, Spain’s situation will continue improving and employment will increase, allowing us to become an example of how an economy that sadly had to undergo a profound crisis, but that thanks to reform was able to climb out of the pit and consolidate the recovery of long-term economic growth and employment.