– The English School

IB Economics – Internal Assessment Cover Sheet

Name:
Alejandro Latorre Castellanos

Candidate Number:

Teacher:
Mr. Jairo Borda

Source of the http://www.nytimes.com/2016/05/03/upshot/spains-jobless-

Article: numbers-almost-look-like-misprints.html?_r=0

The Mystery of Spain’s Perpetual Jobs

Title of the Article: Problem

Date of Article: 02/05/2016

Date Written 16/05/2016

Word Count (650 –

653
750 Words):

Commentary
Number: 2

Area of the syllabus ❒ Section 1: Introduction to economics

your commentary ❒ Section 2: Microeconomics
relates to (please
tick the one which ❒ Section 3: Macroeconomics
is most relevant
and indicate ❒ Section 4: International economics
specific section) ❒ Section 5: Development economics

EURO ECONOMICS

The Mystery of Spain’s

Perpetual Jobs Problem
Peter Eavis MAY 2, 2016
It was welcome news Friday when Europe’s economies reported higher-than-
expected growth. The region, after all, has had to deal with rolling debt crises,
terrorist attacks, an influx of refugees and migrants, and the possibility that
Britain may vote to leave the European Union.

Then there is Spain. Across Europe, economic growth has helped bring the
unemployment rate down. But in Spain, the rate is 20 percent, according to
European Union surveys, and has been above that level for over five years, even
as the country’s economy has been recovering.

You’d be forgiven for thinking that such a high level of joblessness, weighing on
families for so long, would have caused the country to crack by now. The jobless
number is so much higher than the rate for other economic laggards like Italy (11
percent) and Portugal (12 percent).

Certainly, some of Spain’s unemployment is overstated because some workers

have off-the-books jobs. And people may feel optimistic because unemployment
has fallen in recent quarters, from 25 percent two years ago.
Photo

A government-run job center in Madrid last week. The unemployment rate for the young
in Spain is 45.5 percent.
Credit
Andrea Comas/Reuters

Still, Spanish officials recently said they did not expect the jobless rate to fall
below 15 percent until 2019. And there’s the matter of the country’s youth
unemployment (those under 25): an almost incomprehensible 45.5 percent.
A new government in Spain — once it is chosen after almost half a year of discord
— may end up pursuing smarter and bolder policies that reduce joblessness to
levels that exist elsewhere in Europe.
But the chances of that look slim.

Spain’s unemployment is so high partly because of particular local forces that

have existed for decades. Marcel Jansen, an expert on labor markets at the
Universidad Autónoma de Madrid, notes that unemployment above 20 percent is
not uncommon in Spain. In fact, it has been at that level in three periods since
Spain’s transition to democracy in the 1970s. And, ominously, from the previous
unemployment rate peak in the 1990s, it took 14 years for it to decline to the
wider European level, Mr. Jansen notes.

One cause of the high rate became embedded in Spain’s labor market over the
last 40 years. A significant proportion of Spain’s workers emerged from the
dictatorship years with ironclad job security. Many of those protections
remained, Mr. Jansen said, but much of the new hiring in the democratic era took
place through temporary employment contracts. Just before the 2008 financial
crisis, around a third of Spain’s workers were on temporary contracts, far higher
than the European average.

When the crisis hit, it was very easy to lay off the temporary workers. True,
during the recent recovery, the high use of temporary contracts has most likely
spurred Spanish firms to bolster their hiring. But the persistence of overly
protective labor contracts alongside temporary ones with too few protections has
probably also created inefficiencies within Spanish companies that have
dampened economic growth.

Mr. Jansen’s preferred solution is to introduce a new contract that could increase
protections for temporary workers and loosen them for many permanent
workers. But he said Spain’s politicians had shown little support for this idea.
Something else is making matters worse right now. Much of Spain’s working-age
population does not have an education beyond high school. And many of those
people have remained unemployed for multiple years after the financial crisis of
2008. (Nearly a fourth of the unemployed have been without work for four years
or more.)

Such workers are increasingly losing contact with the industries they worked in,
and that will make it even harder for them to find jobs. And hiring in Spain’s
construction industry, a big employer before the crisis, is not likely to return to
precrisis levels anytime soon. Mr. Jansen says helping the long-term unemployed
requires a substantial overhaul of Spain’s retraining programs. But this costs
money, and Spain has one of the largest budget deficits in Europe.
60
COMMENTS
This is where we bump into the big economic debate that looms over the
Continent. On one side are those who insist that struggling countries must pursue
policies that cut government spending and free up markets, to spur strong and
sustainable growth. As we have learned, Spain’s labor market could certainly do
with some big changes. But as we have also seen, these changes are far from
imminent. They are expensive. They threaten entrenched interests. Spain’s
leaders are so divided that they can’t form an administration that could attempt
bold moves.

Economists on the other side of the debate emphasize the need for the European
Union as a whole to come together to introduce big top-down actions. Such
policies include debt forgiveness and far greater fiscal stimulus. Spain’s sky-high
unemployment has not moved Europe’s leaders to take such steps by now. Then
again, Europe can’t count on Spain — or any country — to tolerate this high level
of joblessness forever.

Commentary #2

In macroeconomics one of the main goals is to maintain a low and stable rate of
unemployment. The population that is able and actively seeking to work is known as
the labor force. Measuring unemployment is not easy as there are many factors that
affect the unemployment rate, a measurement used to know a percentage of the
number of people that are without work in the total labor force. The problem is
called hidden unemployment, which consists of several groups of people that give
up searching for work, people who have part time jobs, and people who are working
on jobs that are greatly over-qualified. Unemployment is a problem for the country,
which brings many costs regarding the people, the society and the economy as a
whole. In Spain after the crisis, we can see that unemployment is causing serious
problems for the nation.

In Spain unemployment rate is still very high since the past five years when the
country turned to be a democracy in the 1970s. This country has the highest
unemployment rate in the European Union. Specialists say that the unemployment
rate higher than 20% is normal in this country. In fact, economic growth across
Europe has been very helpful to reduce the number of unemployed people in this
country; helping it to recover. Regarding hidden unemployment, there is a group of
people employed with temporary contracts. And there are is another group of
people working on jobs for which they are overqualified, this means it has nothing
to do with their career. The example of this in Spain is people with the age of 25 and
under are the ones that suffer the most, with a 45.5 percent of the total
unemployment. As Spain is a country that is still in recession it is clear that the
unemployment is disequilibrium unemployment. To continue, it is clear that is
Demand deficient unemployment, this means that consumption decreases on goods
and services as a result of their low income. ADL1 is the new demand, there is
unemployment shown in a-b, the average real wage falls to P1 as wages are ¨Sticky
downwards¨.
Graph 1
Graph 1: Demand Deficient Unemployment
Furthermore, the consequences of unemployment can be significant for the
economy of the country. This involves the cost to the unemployed people
themselves worsening their standards of living. The people affected the most are
young adults, as the still don’t have a stable economic life. Moreover, unemployment
also affects the economy as a whole; as a result there will be an opportunity cost
with the government, there will be more spending to solve social problems created
by unemployment. These problems could be poverty, crime and vandalism. To
continue, looking the effects unemployment can have in the economy businesses are
also affected, as they are not able to run because of the lack of demand and
consumption in the market. Perhaps, the people that are affected directly are people
with domestic incomes who spend less because of their low income.

There are many solutions that can be used to solve this type of unemployment.
The first solution for demand deficient unemployment is basically the government
intervention to bring an increase in aggregate demand through the use of fiscal and
monetary policy. This will shift the Aggregate Demand to the right from AD to AD1,
allowing the economy to recover. The government can also increased its spending
or basically lower direct and indirect taxes so that consumers spend more on goods
and services and increase their consumption.

Graph 2

Graph 2: Increase in Aggregate demand Keynesian Perspective

In conclusion, it is clear that Spain is facing a recovery from the crisis they
experienced in 2008. With the solution given above and the government acting
responsibly and using fiscal and monetary policy, this country will start
experiencing economic growth. On the other hand, interventionist supply side
policies can also be used to solve the hidden unemployment that is affecting young
people that are not in a job they are prepared for.

Bibliography
https://global.oup.com/education/product/9780198390008/?
region=international