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The Spanish paradox: why jobs are booming as the economy lags

Juan Manuel Canals and Basma Eddaheri, both in their 20s, are part of the reason why Spain has confounded predictions of massive job losses in Covid’s wake.

During the pandemic, Canals started working as an IT engineer; Eddaheri has been staffing a Covid helpline for a month.

Their first experiences of work mirror broader changes in the Spanish economy. More people are now employed by sectors such as health, IT, and social services than was the case when Covid-19 hit just under two years ago.

Such growth – partly fueled by state spending – helps explain why the number of people in work has hit a record 20mn. Unemployment has fallen to its lowest level since 2008, roughly half the one in four rate once predicted by groups such as the OECD.

“It’s very easy to get jobs in this sector,” says Canals, an engineer at Kyndryl, an IT service company spun off from IBM last year. “As someone who has just come into the labor market I see many opportunities. . . I feel very optimistic. ”

At a different extreme of the job market, Eddaheri also expresses optimism after being aided by Fundación Iter, a Madrid non-profit to help young people find work.

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“I like the fact that I can help people,” she said. “My contract [on the Covid helpline] is for three months, but afterwards I would like to do something else like it. ”

Unemployment has been Spain’s glaring failing for decades and the country’s jobless rate of 13 per cent remains twice the EU average, as does its youth unemployment rate of 31 per cent.

But strikingly more than one-third of all eurozone jobs created last year were in Spain. The country’s youth unemployment is down 10 percentage points on its level a year ago.

The Spanish government, which last week narrowly passed a long-negotiated reform of labor laws to restrict temporary contracts, argues that faster technological change and increased social spending sparked by the pandemic are here to stay. Madrid plans to spend 30 per cent of its € 70bn in EU coronavirus recovery funds on digitization, as well as increasing funds for health.

Last month, the social security ministry said there were now 429,000 more jobs than in February 2020 – 229,000 in the public sector and 200,000 in the private sector.

Line chart of Unemployment rates (%) showing Spain has higher unemployment than other large European economies

“If you look at the last three Spanish economic crises, never have jobs recovered so fast,” says a government official.

Spain’s figures are part of a global trend that has defied expectations of huge job losses, as demand has returned to the economy and labor has proved scarce rather than surplus.

Christine Lagarde, the president of the European Central Bank, said last week there was “good news to celebrate” after eurozone unemployment fell to a record low of 7 per cent, while worker participation rebounded above pre-pandemic levels at 73.6 per cent.

The US also reported strong numbers last week, with the increase of 467,000 jobs in January – three times expectations.

Spain’s figures also reflect a Europe-wide bet on furlough schemes.

At its peak, Spain’s scheme – known as ERTEs – supported 3.6m people. As of last month, just 106,000 people were on the pandemic scheme. “We had analysts saying 1m people on ERTEs would end up unemployed,” said the government official. “But the number of people still on the schemes is just a tenth of that and steadily going down.”

Rafael Doménech, head of economic analysis at BBVA, the bank, said: “Europe made a bet to maintain jobs, on the expectation that businesses could recover their previous activity, and for most companies, in almost all sectors, that’s what has happened. ”

It is a contrast with the aftermath of the financial crisis, when Spain’s oversized construction sector collapsed – destroying vast numbers of jobs and pushing unemployment up to 26 per cent in 2013. More than one in two young people were jobless.

But he acknowledges a Spanish paradox: despite the improvement in the jobs market, the country’s gross domestic product remains about 4 per cent behind 2019 levels. Much of the reason for the disparity, he thinks, is because of tourism, a seasonal business that is responsible for about 12 per cent of GDP.

Last year, the number of foreign tourists visiting Spain – and the money they spent – were down more than 60 per cent on 2019 levels.

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Working hours are also down on pre-pandemic levels despite the increase in employment. Even in the fourth quarter of last year, the total number of hours worked was down almost 4 per cent on the same period of 2019 – a difference Doménech suggests may be because of factors such as self-isolating staff and businesses wary of spending too much .

Domestic demand is still weak in Spain and, as in other countries, salaries have failed to keep pace with inflation, which has hit 30-year highs of up to 6.5 per cent. Some unions are stepping up wage claims. “The main question mark remains whether the economy can sustain higher wage growth and an unemployment rate still in double digit territory,” said Giada Giani, an economist at Citigroup.

Youth unemployment also remains a huge problem. “For someone without studies, it is very hard to get a good job; you only get the work no one wants, ”says Carlos Inca, who recently did Fundación Iter’s training course near Madrid.

But things are looking up for the 18-year-old, who has just obtained a job promoting solar panels – another area where Spain says it is using EU funds to invest in its future.

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