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Spain's Labor Woes

 The immigration slowdown has been most severe in Spain, whose economy has been one of the hardest hit in the Eurozone. In the second installment of a three part series, the World Policy Journal explores the results of an OECD report on immigration and the recession.


Labor Woes

Spain is perhaps the starkest and most telling example of the story behind the migration slowdown. Until the recession, the country was adding more jobs and admitting more immigrants than any other developed country. But the growth had shaky foundations, owing mostly to asset bubbles (particularly in housing) fueled by domestic Spaniards who were spending deep into debt for goods and services built on cheap immigrant labor. Figures from a country report released by the OECD last Monday reveal that the bursting of the bubble, and the recession in Spain that followed, have led to record outflows from the country.

For a while, Spain seemed to have things right. Between 2000 and 2008 the foreign-born labor force quintupled in size and grew from an 4.5 percent to 18.2 percent share of the work force; from 2000 to 2005 Spain created more jobs than the remainder of the European Union combined. At the peak of the boom, in 2007, Spain let in a record 920,000 migrants.

That number fell by a third in 2008 to 692,000 and another 232,000 foreigners left the country that year, adding up to the lowest net population inflow since 2003. The Spanish economy contracted by 4 percent in 2009 and is not forecasted to return to growth until 2011. Meanwhile, figures for 2009 and 2010 are expected to show the intensification of the decline of net immigration.

Spain’s unusual combination labor laws for nationals (the most rigid in Europe),  liberal immigration policy and an excessively expansionary economic policy created the climate that led to the boom and bust in migrant workers.

Labor laws made it harder for Spanish-born citizens, particularly older ones, to get hired and fired from jobs, leading to a less dynamic job market and an unemployment rate of over 20 percent—Europe’s highest, more than double that of the U.S.  Youth unemployment is the highest in the developed world, with some 44 percent of those under 25 unemployed, giving rise to swathes of Spanish adults in their mid-20s (and even 30s) living with their parents. This group is holding out for better jobs, the kind still held by their parents, and as they wait for the next generation to retire, a large percentage of Spanish-born workers have not sought lower-wage jobs in construction or manufacturing.

This demand for cheap labor was not met until the government granted six immigration amnesties between 1990 and 2006, and foreigners flooded in. Younger immigrants from Latin America, Eastern Europe and North Africa did the same jobs for less pay. This was initially attractive: their arrival led to downward pressure on wage costs, a younger population, a higher birth rate and an increase in social security contributions.

Microscopic interest rates at the height of the boom encouraged consumers and banks to borrow huge sums though, which they then used to chase exaggerated and eventually illusory investments. The Spanish middle classes took out housing loans they could not afford—97 percent of them with adjustable rate mortgages—often with repayment periods of 40 years. In 2006, construction began on more housing units in Spain than in the U.K, Germany, Italy and France combined. This fueled what became the largest housing bubble of any country (relative to the economy’s total size) in history. Today, more than 1 million new housing units remain unsold.

What’s worse, Spain cannot export its way out of the crisis the way Germany has, because like many other countries on Europe's periphery it never developed a competitive manufacturing base. There was a time when Spain could have overcome this by devaluing its currency to undersell its competitors abroad. But with the Euro, no longer.

Bleak Reality
Since 2008, more than 2.5 million jobs have been lost in a country of 40 million people. As the jobs are shed, it is immigrants who are suffering first and most severely. Spain’s unemployment rate among immigrants (27.1 percent) has almost double that among natives (15.2 percent).

In Ireland a similarly large gap of 8 percent emerged between the unemployment rate of immigrants and the domestic-born. Across the EU-15 countries considered a part of traditional Western Europe, foreign-born unemployment increased by 3.4 percent in 2009 (about half of this suffered by Eastern European immigrants)—twice the rise experienced by the native-born.

Little wonder that the OECD secretary general, Angel Gurria, warns that immigrants should not shoulder the consequences of what is a Spanish- and more broadly European-created crisis. “It is important to recall that migrants are valuable contributors to the national economy, especially when times are good.” Immigrants were the ones who made the boom possible in the first place. Continued loose economic policy, and the Spanish over-consumption and indebtedness that naturally followed, are responsible for turning boom to bubble--and for the crisis that has ended up hurting them most.

--David Black


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