Spanish jobs a black hole amid black economy


Spain’s unemployment rate, already the highest in the industrialised world, soared to a 14-year high just as the government attacked illegal jobs which experts say cast doubt on the figures.
Official data Friday showed the jobless rate leapt to 21.29 percent in the first quarter, the highest level since the beginning of 1997, when it was 21.30 percent. The figures were published by the national statistical institute INE against a background of severe strains on the Spanish economy arising from depressed economic activity and high public deficits and debt.
Just hours later, the government approved a raft of measures to combat the so-called ‘black’ economy which is believed to represent almost one quarter of the economic output of Spain where several million people work without being registered.
A study by the Foundation of Spanish Savings Banks (Funcas) published in March estimated that the undeclared market accounted for four million jobs and 17.0 percent of GDP.
The tax inspectors’ union Gestha put the figure at 23.3 percent of GDP, or some 245 billion euros ($363 billion) of which 161.5 billion euros was in the form of tax fraud. Some experts say such figures make nonsense of the unemployment data.
Spain has the highest unemployment rates in the European Union and in the area covered by the Organisation for Economic Cooperation and Development, with figures twice the averages.
At IESE Business School, Economist Javier Diaz-Gimenez said: “The size of the underground economy in Spain is among the biggest in the OECD with Portugal, Greece and Italy.” He said this occurred because controls and penalties were weak, and labour charges were high.
“Clearly, with so much underground economic activity, all the (official) figures are false.” He suggested that this would “remove two, three or four points from the unemployment rate.” At Madrid’s Complutense University, economics professor Carlos Sebastian put the underlying unemployment rate at “between 10 and 15 percent.” This is advanced as one reason why unemployment does not spark widespread protests even though, officially, in 1.39 million homes, every member of the family of working age is unemployed. The picture is difficult to see, because people who work illegally may also have a legal job or be registered as unemployed.
In the European Union, official unemployment data covers people who are registered as unemployed, who are available to work and who do not work for more than a few hours per week. The figures were published against a background of severe strains on the Spanish economy arising from depressed economic activity and high public deficits and debt.
At the end of March the total of people registered as unemployed approached five million, at 4.91 million, INE said. It said inflation in Spain also rose in April to 3.5 percent from 3.3 percent in March, the highest figure since October 2008. The Bank of Spain recently raised its outlook for inflation to 2.9 percent for 2011 from 1.7 percent foreseen previously.
Inflationary pressures should ease later in the year and inflation in 2012 would be 1.5 percent, it said. The government recently raised its forecast for the unemployment rate this year to 19.8 percent from 19.3 percent, but expects it to fall to 18.5 percent next year, 17.3 percent in 2013 and 16.0 percent in 2014.
The economy contracted by 3.8 percent in 2009 and shrank slightly by 0.1 percent last year. The government expects growth of 1.3 percent this year but the International Monetary Fund has forecast growth of 0.6 percent. The country is now fighting to avoid needing a debt rescue and has announced deep spending cuts, and structural reforms of the economy including privatisations and a relaxation of job-protection laws.
The government Friday also announced a deficit reduction target of 2.1 percent of output in 2014. It had already announced that it intended to reduce its public deficit to 3.0 percent of output, the European Union ceiling is 3.0 percent, in 2013. The deficit last year amounted to 9.2 percent and the target for this year is 6.0 percent of gross domestic product.