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Labor market mirage

The downturn in joblessness in June does not change the overall trend of job destruction

The drop in unemployment registered in the month of June in the offices of the Spanish state employment agency Inem has surprised both government and analysts. Unemployment in Spain dropped last month by almost 99,000, an unusual figure, owing mainly to seasonal factors, such as the healthy tourism market (hotels in particular) and to the regularization of domestic service.

Even in conditions of economic growth, prudence demands that June’s apparent downturn be confirmed in subsequent months; in a time of recession, with the unemployment rate at about 24 percent, prudence must go further, while awaiting the Active Population Survey (EPA) for the second quarter, which will more reliably indicate the trend of the unemployment rate.

For the moment, there are no reasons to suppose there has been any real improvement in the depressive tendency of the labor market. In fact, the pattern of evolution points to a growth of unemployment in the months to come. The shrinkage of public spending is only beginning, and the downward adjustments in employment will begin to intensify with the enactment of the labor market reform now it has finally passed through Congress.

Everything leads us to suppose that the Inem rate for June is a statistical singularity, and that the persistent recession will go on destroying employment, at least throughout what remains of 2012. No labor market forecast augurs any net creation of employment before 2014, while some push back any eventual turning point until 2015.

June’s statistics also contain a significant inconsistency: unemployment declines more than Social Security contributions rise. The working hypotheses to explain this discrepancy involve an aggravation of the discouragement factor — in other words, jobless people cease to register as such in Inem offices, considering that they will not thus obtain any benefits; and also a mass exodus of Spanish workers to other countries in search of opportunities they will not find here.

The unemployment statistics are already reflecting far-reaching social problems, which will grow worse if a reasonable solution for the labor market is not found.

The most serious social problem caused by unemployment in Spain is the tremendous rate of joblessness among young people. The European Commission has just sounded the alarm in pointing out that 52.1 percent of young people (under 25 years of age) in Spain do not have a job — the same percentage as Greece.

The extreme duality in the Spanish labor market is dooming to long-term joblessness a whole generation of young people trained in vocational schools and universities. The government’s labor market reform is oriented to linking the recession and the collapse of demand to wage levels, but it has neglected to legislate so that prevalent hiring practices will not adversely affect half of the young professionals in the country.