Spain’s labour market: a story of convergence towards Europe

Spain’s labour market: a story of convergence towards Europe

Tuesday, 30 April 2024

Funcas Europe

Spain has long grappled with the challenge of unemployment. In recent decades, the labor market has stood as a testament to the country's economic challenges. Yet, as a recent Future is Blue podcast episode highlights, there is a budding resilience in the Spanish labor force, highlighting evolution from the historical trends of high unemployment, particularly during times of economic uncertainty.

What follows are the key points covered in our Future is Blue podcast (you can listen to it here), featuring Alice Faibishenko, Senior Advisor at Funcas.  

For years, Spain's labor market has been a critical weak spot, characterized by its procyclicality—where economic downturns lead to severe job losses. Data reveals that traditionally, during recessions, Spanish employment has suffered disproportionately when compared to its European peers. The nation's unemployment rate has been in the double digits for most of the last five decades, with brief periods of improvement prior to the financial crisis. Since then, Spanish unemployment has remained consistently higher than other European countries.

However, recent trends suggest a shift toward stability. Post-pandemic, Spain’s labor market displayed an unprecedented level of resilience. The job market contracted less than the overall economy and rebounded with remarkable speed, unlike in previous financial crises where the recovery was slow and often incomplete. Employment decreased by less than GDP, and the recovery period was much shorter compared to the financial crisis of 2008 or even the recession of the early 1990s.

The improvements, as economic analysts suggest, are not accidental but the result of a combination of a favorable macroeconomic climate, policy reforms and shifts in demographics. This is further evidenced by continued growth in employment, with over 20 million Spaniards working by the end of 2023, reflecting a 6% increase from 2021 to 2023.

Indeed, employment has shown more resistance to recessionary pressures, contributing to the market's stabilization. Spain's labor demand, too, reflects this newfound robustness.

An examination of online job postings through February 2024 shows a 50% increase from the same period in 2020, indicating that the pandemic did little lasting damage to labor demand. Moreover, this increase in job postings appears to be correlated with wage growth, suggesting that the rise in demand for workers is positively influencing salaries.  The steady growth of job postings is also a sign of employer optimism, particularly in comparison to other European economies where a gradual slowdown persists.

Yet, it’s not all upward trends and recovery. Two principal challenges continue to overshadow the labor landscape: the persistent unemployment among less-skilled workers and women, and the difficult transition from education to work for Spanish youth. A staggering 35% of employed young people are overqualified for their positions, above the EU average, suggesting a misalignment between education and job opportunities.

The problem is further accentuated by a youth unemployment rate that is twice the EU average. The number of long-term unemployed—those searching for work for over a year—remains at 4% of the labor force, double the European average, emphasizing the challenges faced by job seekers.

As Spain grapples with these challenges, the question of quality employment becomes ever more pressing. The plight of Spanish millennials underscores this—despite being more educated, they face a labor market that is not fully prepared to leverage their skills, leading to underemployment and job insecurity. This has societal repercussions, with young Spaniards increasingly migrating to urban centers, driving up housing costs and putting pressure on social security systems due to delayed independence and lower birth rates. For example, many young Spaniards now leave home past the age of 30, a direct consequence of economic pressures.

In response, experts call for evidence-based policies that support the creation of quality jobs and housing to enable Spain’s youth to thrive. The need for reform extends beyond employment opportunities; it encompasses broader structural changes to education and vocational training, ensuring a better alignment between the skills developed in educational institutions and the needs of the job market. In summary, the Spanish labor market is showing signs of improvement, bolstered by macroeconomic stability and structural reforms. Demand for jobs is growing, and employment is up. Yet, the structural issues, particularly impacting the youth, loom large. As Spain continues its journey towards economic revitalization, addressing these issues will be pivotal for sustainable growth and the wellbeing of its society.

Carlos Carnicero Urabayen


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