Spain: Unemployment and the Crisis
Why did Spanish unemployment go up so much in the Crisis?
Spanish Real GDP peaked in 2008:Q1, over the following 2 (5) years it fell by 5 (7.5) percent. Spain's unemployment rate soared from 9.2 percent to 19.4 (26.??) percent over the same period.
Percentage falls from peak to trough in GDP and the rise in the unemployment rate and fall in employment for some comparable countries:
Country, GDP, Unemp., Emp.
EZ, -5.9, 1.7, -1.7
EU, -6.1, 2.1, -1.6
DE, -6.9, -0.4, 0.5
FR, -4.4, 2.1, -0.7
IE, -12.9, 8.2, -10.6
IT, -7.6, 1.1, -1.4
JP, -9.5, 0.6, -0.8
SE, -7.7, 1.4, -0.9
UK, -7.6, 2.7, -2.0
US, -4.3, 4.5, -4.1
EZ=Eurozone, EU=European Union, DE=Germany, FR=France, IE=Ireland, IT=Italy, JP=Japan, SE=Sweden, UK=United Kingdom, US=United States of America
GDP=percentage change in GDP
Unemp.=rise in unemployment rate (percentage points)
Emp.=percentage change in number of employed people
For details on these numbers, see
So a 5 percent fall in GDP resulted in a 10 percentage point rise in unemployment. A ratio of around 2.
This is unusual, in the European Union unemployment rose 0.35 percentage points for every percent that GDP fell. The highest for any comparable country is the US where the ratio was 1.04.
So the fall in Spanish GDP only explains at most 5 of the 10 percentage point rise in Spain's Unemployment rate.
But then what explains why Spanish Unemployment rose so much???
One possibility often pointed to is that Spain had a large construction sector, which was devastated by the crisis with lots of construction jobs lost. Was the oversize construction sector enough to explain why Spain lost so many more jobs than 'expected'.
The number of jobs lost in construction was around 1.7 million out of a total of 2.9 million (60% of construction jobs were lost), while the total number of jobs lost in Spain was around 3.7 million out of a total of 20 million (18.3% of jobs were lost). So the basic story makes sense.
But this is not enough to account for all of the 'extra' increase in Spanish Unemployment.
One way to see that having a large construction sector was not enough to explain why Spain lost so many jobs is the following: look at the fraction of jobs lost in other sectors. There were 17 million non-construction jobs of which 2.3 million were lost. So 13.5% of non-construction jobs were lost. If we repeat the previous analysis comparing ratios of percentage of jobs lost to percentage fall in GDP we find that even after looking only at non-construction jobs the ratio is Spain is still high. The only countries even close to getting the same ratio as 'Spain-without-construction' are the US and Ireland, both of which were also known for their large housing booms leading up to the crisis.
(This argument is overly generous to the idea that Spain's oversized construction sector explains the 'extra' jobs lost. All countries have construction sectors, and they almost always lose more jobs than other sectors during recessions.)
So if Spain's massive increase in unemployment during the crisis is not explained by the size of the recession, nor it's large construction sector, what does explain it?
In fact, it is not just in the crisis that Spain's unemployment rate increased a lot. The unemployment rate in Spain is generally larger than in other countries, and increases a lot more in recessions.
[Unfortunately FRED does not contain data on Temporary vs Permanent (Indefinido) contracts. If it did we would see that Temporary contracts go up and down much more than Permanent contracts and account for a substantial fraction of the movements in the number of employed people. You can find numbers for this in INE.es]
The most likely answer then is that the large increase in Spanish employment has to do with the laws and institutions governing jobs in Spain. Economists often point to two things in particular.
First, to the way in which contracts agreed between Employers groups and Unions are immediately applied to whole sectors (a lack of flexibility in wage setting, lack of responsiveness to conditions in different workplaces).
Second, to Spain's dual labour market. Some employment contracts are permanent (indefinido) and others are temporary. A few other countries also have two types of employment contract, but the differences between the two types is much smaller than it is in Spain.