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Wednesday, June 15, 2016

The Pain in Spain Is Easy To Explain

Brad Setser:

The Pain in Spain Is Easy To Explain: A few weeks back, the New York Times looked at the “mystery” of Spain’s high level of unemployment.
The article highlighted a real debate about the right level of job protection in Spain, and in Europe.
But the headline obviously stuck in my mind. I do not think there should be any significant debate over why Spain continues to have a very high level of unemployment.
Look at employment. It is down well over over 10 percent from its pre-crisis levels. Even with the current recovery, there are over 2.5 million fewer people at work in Spain today than in 2007 (18 million versus 20.7 million workers over age 15 using the harmonized EU data; the national data has a similar change but a slightly higher level)
And domestic demand is also down well over 10 percentage points.
No mystery. If demand in the United States was 10 percent below its 2007 level, rather than roughly 10 percent above its 2007 level, I would certainly hope that there would not be much of a debate on the source of a weak labor market.

Spain did have a rather high level of unemployment back in the 1990s. Yet when demand was strong, folks were pulled into the labor market. Joblessness fell. From 2005 on, Spain’s labor market institutions were consistent with unemployment rates of well below 10 percent.

And—unless the stories European policy makers tell themselves are off—Spain’s labor market institutions should work better today than they did prior to the crisis. It is thus hard to see changes in labor laws since 2005 can explain why there are fewer people working now than in 2005. ...

    Posted by on Wednesday, June 15, 2016 at 02:33 PM in Economics | Permalink  Comments (32)


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