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Why is Spain's unemployment rate rising and what's being done to cap it?

Demonstrators waves Spanish and Navarre flags as they protest against the amnesty at Plaza del Castillo square, in Pamplona, northern Spain, Saturday, Nov. 18, 2023.
Demonstrators waves Spanish and Navarre flags as they protest against the amnesty at Plaza del Castillo square, in Pamplona, northern Spain, Saturday, Nov. 18, 2023. Copyright AP Photo/Alvaro Barrientos
Copyright AP Photo/Alvaro Barrientos
By Indrabati Lahiri
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The abundance of temporary contracts, as well as low productivity, have both contributed to unemployment levels spiking in the first quarter of the year.

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The Spanish unemployment report for the first quarter (Q1) of 2024 was released on Friday morning and showed that unemployment in the country rose to 12.29% from 11.80% in Q1 2023, according to the National Statistics Institute (INE). This was also more than analyst forecasts of 11.80%.

This higher figure comes as Spain continues to struggle with a significant number of its employment contracts being temporary, due to its massive tourism and hospitality sector, as well as chronically low productivity.

Market measures supporting job stability in Spain

Although an increase from the previous quarter, Spanish unemployment is still considerably close to historically low levels, due to a number of labour market measures being taken to support job stability.

Dutch financial institution ING said recently: “While Spain's unemployment rate is historically low, it is still much higher than in other eurozone countries. Various reforms- particularly the 2022 labour reform- have successfully curtailed the prevalence of temporary contracts, enhancing job stability and positively impacting unemployment rates. But further reforms will be needed in the coming years.

“We expect the unemployment rate to continue to hover around these historically low rates in 2024. In the first months of this year, slowing job creation and labour force growth due to strong immigration flows may put some upward pressure on the unemployment rate."

ING also noted, however, that accelerating economic growth will keep the labour market tight. "For all of 2024, we forecast an average unemployment rate of 11.6%. In 2025. We expect the unemployment rate to head slowly downwards to 11.2%.”

Spain’s year-on-year retail sales report for March 2024 was also released on Friday, clocking in at 0.6%, which was quite a step down from February’s 1.8%. However, it was still the sixteenth consecutive month of the Spanish retail sector seeing growth. On a month-on-month basis, retail sales dropped 0.5% in March.

Foreign workers could be boosting Spain’s labour market

Although Spain has one of the highest unemployment rates in Europe, it is still seen as a very attractive work destination by a number of foreign workers, especially those from Latin America, due to a number of reasons.

A common language is one of the most important amongst these, helping workers immensely in integrating with the local culture and finding better-paying opportunities.

Similarly, Spain’s economy also benefits enormously from these migrant workers, due to them often being highly skilled but unable to find suitable jobs in their home countries because of overarching economic and political issues.

Spain’s hospitality and technology sector has seen a particular boost from this phenomenon, similar to the economic gains seen by the US in the last few decades of increased skilled immigration.

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