Jobless in Europe: The wretches of Spain

What kind of a social model is it that leaves half of young people out of work? George Eaton profiles Spain's employment woes.

What kind of social model is it that leaves more than half of young people out of work? In two European Union countries, Greece and Spain, this grim threshold has now been passed. Of the pair, it is the latter that is most striking. In the EU’s fifthlargest economy, youth unemployment stands at 56.1 per cent, a level that would once have been considered unthinkable by those who lived through the post-Franco Spanish “economic miracle”.

The chronic joblessness is largely attributable to the 2008 crash and the austerity subsequently imposed at the behest of Berlin. In the boom years the Spanish economy became dangerously reliant on construction, which at its peak accounted for 16 per cent of GDP and 12 per cent of employment. When the property bubble burst, after house prices had risen by more than 100 per cent in ten years, unemployment immediately surged.

The €27bn of spending cuts and tax rises introduced by the Rajoy government have made a bad situation worse, with the economy falling into a double-dip recession. Keynes’s advice to “take care of unemployment” and let the budget deficit “take care of itself” has been ignored by the austerians of Brussels.

Yet this alone cannot explain Spain’s exceptional youth joblessness, which stood at 18.2 per cent even before the crash. The root of the problem lies in the country’s two-tier labour market, which gives permanent workers huge advantage over their temporary counterparts. Unable to adjust the pay and conditions of long-standing employees established through collective bargaining agreements, companies took to laying off the third of workers on short-term contracts. A report last year by the Bank of Spain’s Centre of Monetary and Financial Studies found that 90 per cent of those who had lost their job since 2007 were in temporary employment. The apparent ease with which short-term work could be found before the crisis, most notably in the property sector, also encouraged the young to drop out of school as early as possible. As a result, 30 per cent of young Spaniards have no qualifications, leaving them unable to compete for high-skilled jobs. The problem is compounded by a welfare system that removes all support from claimants once they find work, however low-paid, prompting some to conclude they are better off remaining on benefits and working in the black economy.

The labour-market reforms introduced by the government, including allowing struggling companies to opt out of collective bargaining agreements and a reduction in the highest level of severance pay (aimed at encouraging firms to take a chance on new workers), may improve the situation at the margins but many are not waiting to find out. More than 280,000 young people left Spain last year in search of work, with Germany, the UK, Argentina and Venezuela the most popular destinations. Thousands of young scientists and academics have departed after a 40 per cent cut in state spending on research and development. It leaves Spain ill-equipped for when recovery comes.

In the meantime, those unwilling or unable to emigrate are left with the melancholy reflection that they are just halfway through what is almost certain to be a lost decade.

An employed mother of four in unfurnished social housing in Bollullos del Condado, Spain. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

This article first appeared in the 19 August 2013 issue of the New Statesman, Why aren’t young people working

Photo: Getty Images
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How can Britain become a nation of homeowners?

David Cameron must unlock the spirit of his postwar predecessors to get the housing market back on track. 

In the 1955 election, Anthony Eden described turning Britain into a “property-owning democracy” as his – and by extension, the Conservative Party’s – overarching mission.

60 years later, what’s changed? Then, as now, an Old Etonian sits in Downing Street. Then, as now, Labour are badly riven between left and right, with their last stay in government widely believed – by their activists at least – to have been a disappointment. Then as now, few commentators seriously believe the Tories will be out of power any time soon.

But as for a property-owning democracy? That’s going less well.

When Eden won in 1955, around a third of people owned their own homes. By the time the Conservative government gave way to Harold Wilson in 1964, 42 per cent of households were owner-occupiers.

That kicked off a long period – from the mid-50s right until the fall of the Berlin Wall – in which home ownership increased, before staying roughly flat at 70 per cent of the population from 1991 to 2001.

But over the course of the next decade, for the first time in over a hundred years, the proportion of owner-occupiers went to into reverse. Just 64 percent of households were owner-occupier in 2011. No-one seriously believes that number will have gone anywhere other than down by the time of the next census in 2021. Most troublingly, in London – which, for the most part, gives us a fairly accurate idea of what the demographics of Britain as a whole will be in 30 years’ time – more than half of households are now renters.

What’s gone wrong?

In short, property prices have shot out of reach of increasing numbers of people. The British housing market increasingly gets a failing grade at “Social Contract 101”: could someone, without a backstop of parental or family capital, entering the workforce today, working full-time, seriously hope to retire in 50 years in their own home with their mortgage paid off?

It’s useful to compare and contrast the policy levers of those two Old Etonians, Eden and Cameron. Cameron, so far, has favoured demand-side solutions: Help to Buy and the new Help to Buy ISA.

To take the second, newer of those two policy innovations first: the Help to Buy ISA. Does it work?

Well, if you are a pre-existing saver – you can’t use the Help to Buy ISA for another tax year. And you have to stop putting money into any existing ISAs. So anyone putting a little aside at the moment – not going to feel the benefit of a Help to Buy ISA.

And anyone solely reliant on a Help to Buy ISA – the most you can benefit from, if you are single, it is an extra three grand from the government. This is not going to shift any houses any time soon.

What it is is a bung for the only working-age demographic to have done well out of the Coalition: dual-earner couples with no children earning above average income.

What about Help to Buy itself? At the margins, Help to Buy is helping some people achieve completions – while driving up the big disincentive to home ownership in the shape of prices – and creating sub-prime style risks for the taxpayer in future.

Eden, in contrast, preferred supply-side policies: his government, like every peacetime government from Baldwin until Thatcher’s it was a housebuilding government.

Why are house prices so high? Because there aren’t enough of them. The sector is over-regulated, underprovided, there isn’t enough housing either for social lets or for buyers. And until today’s Conservatives rediscover the spirit of Eden, that is unlikely to change.

I was at a Conservative party fringe (I was on the far left, both in terms of seating and politics).This is what I said, minus the ums, the ahs, and the moment my screensaver kicked in.

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.