On July 25, Spain’s national statistics office, INE, said in a statement that the country’s unemployment rate has registered at nearly 27 percent in the second quarter of 2013, meaning that a total of 5,977,500 people are without job in the recession-hit country.
The IMF also urged Madrid to focus on creating jobs, warning that the outlook for Spain´s economy is “difficult and risks are high.”
Spain´s unemployment rate was at 24% in 1994, 21% in 1997 and it fell to just above 8% by early 2007. It was at 26.3% in July. The Fund says the increase since 2007 (19 points in 6 years) is unprecedented in Spain’s history and the sensitivity of unemployment to growth in 2012 was one of the highest in the world. Unemployment is disproportionately affecting workers with temporary contracts and the young (57% unemployed in Q1 2013), reflecting Spain’s highly dual labour market.
The IMF says Spain´s growth should start to turn positive later this year, but will likely only gradually pick up in the medium term, with limited gains in employment. A more favourable scenario is within reach, especially in the medium term if the envisaged reforms are fully implemented by Spain and Europe. But there are also significant downside risks which could result in a more protracted recession. Growth has been negative in the last seven quarters, and output is down 7% from its peak. Unlike the first dip of the recession, the second is proving shallower.
The Fund says there’s still too much of a gap between those on well-protected permanent contracts and those on temporary contracts. For the unemployed, they need more training and more help to find jobs, and a reduction in the cost of employing them, including tax costs. "We would also suggest that, given the urgency of the situation, it is worth exploring a social agreement that could perhaps bring forward the job gains and structural reforms."
On labour market policy, a major reform was instituted in July 2012 to improve firms’ ability to adjust working conditions (including wages), reduce duality, and promote job matching and training. Unemployment insurance was reduced by 17% after 6 months of benefits, and hiring subsidies were reformed. In February 2013, the government announced more flexible hiring arrangements for youth and tax incentives to support youth employment and entrepreneurship.
Product and service market reforms are underway. The government liberalised the establishment of small retail stores and retail business hours. Further reforms have been announced to remove regulations that fragment the domestic market, to liberalize professional services, and to foster entrepreneurship.