Spain: Stuck on the sidelines

Amonth before his 16th birthday, Francisco Perdones decided he had finally had enough. He was tired of school, tired of learning things that simply did not stick in his head. Other boys, not much older than him, were already earning good money at Emiliano Madrid, the sprawling metal factory just outside town. They had money to buy motorbikes and cars, and rounds of drinks at the local nightclub on Friday nights. Times in Spain were good, everyone was making dinero fácil – easy money – and Francisco wanted his share of it.

The final straw came when his teachers forced him to repeat a year because of his poor marks. “My brother was already working at Emiliano Madrid and he told me there was a vacancy. So I left school. I didn’t even think about it,” he recalls.

For a youngster living in Cebolla, a small town in the region of Castilla-La Mancha, it was an easy decision to make in the late 1990s: Spain was just climbing the foothills of a decade-long construction boom, and the windows and steel frames made by Emiliano Madrid were in demand up and down the country.

The factory spewed out money and sucked in young workers. David Perez left school at 16 and was soon earning as much as €2,500 a month. “We earned so much money. The only people who didn’t have a BMW were the ones that didn’t want one,” he recalls. “People bought houses, they bought boats – all with the money from Emiliano Madrid.”

The flow of easy money began to slow in 2008. Salaries were cut and the factory went through several rounds of lay-offs. In October last year, Emiliano Madrid finally went into receivership – one more corporate victim of the bursting of Spain’s property bubble. Overnight, the unemployment rate in Cebolla shot up to 40 per cent. Out of a population of 3,860, more than 900 men and women are now out of a job.

For younger workers like Mr Perdones, who is now 30, and Mr Perez, 26, the closure has been traumatic. Both lost their jobs last year and have struggled to make sense of their new lives since. Mr Perdones says he wants to set up a business but is finding it hard to raise the money. Mr Perez draws his unemployment cheque, which is currently €1,200 a month, and goes running and to the gym as much as he can. “Otherwise, I would go crazy,” he says.

As Spaniards brace themselves for the latest set of unemployment figures, due to be published today, Mr Perez has reason to feel despondent. There is no sign that jobless numbers are coming down and youth unemployment in particular continues to soar. Economists believe the number of Spaniards out of work will have exceeded 6m in a population of 47m in the first quarter of the year, the highest since records began. The unemployment rate is creeping towards 27 per cent, while the share of young unemployed stands at a harrowing 55 per cent.

Amid this ocean of economic misery, one group stands out: young, unskilled workers like Mr Perez and Mr Perdones. According to official data, there are 1.8m Spaniards below the age of 30 who are looking for a job. Of those, more than half left school with only the most basic certificate, the ESO, or with no formal certificate at all. Many of them made a good living working on construction sites and in factories that produced the plaster, bricks, doors and windows for Spain’s property miracle. These jobs are now all but gone and few believe they will ever fully return.

The people left behind are coalescing into the hard core of a new Spanish underclass that will become more difficult to dissolve with every month that passes. Some 640,000 jobless Spaniards below 30 are – despite their age – already classified as long-term unemployed. Economists warn that the rapidly swelling ranks of young, low-skilled unemployed pose a challenge to the country that is likely to outlive the crisis by many years. What is at stake is not just Spain’s long-term economic prospects but also the social and political fabric of a society that has faced the downturn – at least until now – with remarkable equanimity and solidarity.

“The question is not whether or not we will come out of this crisis,” says Manuel de la Rocha, an economist at Fundación Alternativas, a Madrid-based think-tank. “The real question is what kind of country we will be living in 10 years from now. And there is almost no discussion of this.”

The fear voiced by many analysts is that it will be difficult, if not impossible, to get most of Spain’s low-skilled youngsters back into work. They point out that unemployed workers have less chance of finding a new job with every month that passes. After two years, which happens to be when Spanish unemployment benefits run out, they are 50 per cent less likely to find work than at the start of their term.

“It is very hard to send these people back to school,” says Marcel Jansen, a professor of economics at Madrid’s Autónoma University. “Many of them have family obligations or they have bought houses. They have low levels of education, and often their only experience is in the construction sector. Some have been unemployed for years.” Many of them, he fears, are likely “to remain at the margins of the labour market for a very long time”.

The risks to public finance and the broader economy are plain to see. Over in the town hall of Cebolla, the mayor says he has been forced to slash expenditure “to the bone”. Rubén del Mazo Fernández shows a table comparing the cost of the local fiesta three years ago and now to make his point. Among other expenses, Cebolla used to pay €6,000 for fireworks, €10,000 for a mobile disco and €40,000 for bulls (to be swiftly dispatched in the arena). In the new age of austerity, the cost of fireworks and the disco have been cut by more than half, and the bullfight was cancelled altogether.

“It was a very unpopular decision but we had to do it,” says Mr del Mazo Fernández.

The mayor’s problems are, of course, mirrored at the national level, where the government loses out at least three times over: it has to pay unemployment benefits, loses income tax revenue and loses contributors to the social security system – which is already creaking badly. The economy, meanwhile, stands to suffer because of the long-term erosion in the quality of the country’s labour force.

As the European Commission warned in a report this month, Spain’s unemployment crisis poses a “growing risk . . . of a reduction in future potential output growth” – a warning that is echoed by experts such as Prof Jansen. “People tend to forget that there will be a time when Spain starts growing again – and we cannot afford the ‘luxury’ of keeping millions of workers at the margins of the labour market for the rest of their lives. The Spanish government is grossly underestimating these risks,” he says.

It is a dynamic that is starting to put fear into the hearts of European leaders such as Angela Merkel, the German chancellor, who has warned repeatedly of the dangers posed by Spain’s youth unemployment crisis. Madrid-based foreign diplomats have noted with admiration – and a degree of surprise – that the economic crisis has not yet spilled over into significant social unrest. There has been no surge in political extremism as seen in Greece, and no violence or overt expressions of antipathy towards Spain’s large immigrant community. But many worry that the peace cannot last forever.

The Spanish government has – belatedly, according to critics – woken up to the problem. Madrid recently published a battery of 100 measures to help the young unemployed, including special training programmes and help for young entrepreneurs. The reforms are projected to cost €3.5bn and are designed to complement last year’s broader overhaul of the labour market, which lowered the cost of firing workers and made it easier for companies to depart from collective wage deals. Experts say the resulting drop in labour costs is helping Spain regain competitiveness – and may eventually lead to fresh job creation. But it is far from clear that lowering the price of labour will aid the many job-seekers whose main problem is a lack of employable skills.

Some of the structural problems that bedevil the Spanish labour market will, in any case, take a long time to unwind: one is the notorious gulf in the protection and rights enjoyed by workers on fixed contracts and temporary workers, a divide that encourages Spanish companies to hire and fire at short notice, without investing in the longer-term productivity of their workforce.

Another serious problem is the lack of incentives – and support – to get the unemployed back to work. Juan José Dolado, a professor of economics at Carlos III University in Madrid, argues that Spain’s public employment services are too thinly staffed to find work for almost 6m unemployed: “If you have only 22,000 people in the public employment service there’s no way you can do this. Each employee has to look after hundreds of unemployed people.”

The system of unemployment benefits can in itself discourage the search for work. As Spaniards lose their payments as soon as they find a job – no matter how low paid – it can be more lucrative for them to remain on benefits while working occasionally in the black economy. And because benefits are paid for at least two years, some Spaniards step up their search for a new job only towards the end of that period, when it is often already too late.

But the example of Cebolla shows that the failure goes far beyond the realm of labour market politics. Spanish companies shoulder at least some of the blame for failing to invest in the skills of their workforce. At Emiliano Madrid, for example, most workers remained in the same post in the same section of the assembly line for years. “There were people, all they did was put a piece of rubber inside the window frame,” remembers Mr Perez. “Now the only thing they know how to do is put a piece of rubber in a window.”

Mr de la Rocha, the economist, warns that Spain is raising a lost generation. “All this is extremely dangerous,” he says. “There is a whole generation of kids that dropped out of school and never finished their education. They got jobs in construction. Now they are in their late 20s and 30s, and they have no jobs, no skills and no future.”

For Cebolla – as for the rest of Spain – the full force of that shock has yet to be felt. Even five years into the economic downturn, many unemployed Spaniards can still rely on state benefits, and on the help of closely knit families. But the fear is that these safety nets will stretch and tear long before the broader economy turns round. “People are still comfortable getting their benefits,” says Mr Perdones. “They say: ‘I still have money.’ But what will happen when the money runs out?”

Teachers face a battle against mindsets

Armando Salgado, the headmaster of the high school in Cebolla, remembers Spain’s long property boom with a particular sense of regret and frustration.

Year after year, 16-year-old pupils would leave school with only the most basic leaving certificate – or with none – to work on construction sites and in businesses related to the property sector.

“It was very easy to get a job,” Mr Salgado says. “Now they realise that things are different – but they don’t have the suitable skills.”

The causes of Spain’s unemployment crisis are complex and plentiful – but few would argue that the country’s school system is entirely without blame. International studies and tests typically show that Spanish pupils do less well in key subjects, such as maths, than the European average. By far the biggest problem, however, is that the country has long had one of the highest rates of “early school-leavers” in the developed world. Because Spain still lacks a fully fledged vocational training system, this means that far too many young Spaniards enter the job market without adequate preparation.

One specific problem, says the OECD, is the comparatively large number of students who are forced to repeat a year. It is an experience that leaves many so frustrated and bored that they would rather leave school altogether.

Teachers complain that there was too little effort from parents, who – like their children – took for granted that low-skilled jobs would be there for ever. “The parents supported the kids. They said: ‘I cannot help it if he doesn’t want to study’,” recalls Emiliana Suela, the school psychologist and career adviser in Cebolla.

The Spanish government recently proposed an overhaul of the school system that is trying to fix at least some of the structural deficiencies (for example, by boosting vocational training).

But Mr Salgado, the headmaster, warns that the problem facing many of Spain’s youngsters is as much about attitude as the school curriculum: “They grew up in a culture in which everything was easy, and when I tell them now that things are very difficult, for them this is hard to understand.”