Spain’s unemployment rate rose to 22.9 percent, the highest in 15 years, increasing pressure on Spanish Prime Minister Mariano Rajoy to change labor rules and deliver on his election pledge to create jobs in a shrinking economy.
The unemployment rate rose in the fourth quarter from 21.5 percent in the previous three months, the National Statistics Institute (INE) in Madrid said yesterday. That is more than twice the eurozone average and exceeds the median estimate of 22.2 percent in a Bloomberg survey of seven analysts.
Spain is home to a third of the eurozone’s unemployed, according to the EU’s statistics office, which estimates that half of young Spaniards are out of work. The People’s Party government, which won last year’s election after a campaign focused on jobs, has promised to overhaul labor and wage rules in the next two weeks to prompt companies to hire.
“This shows that the government has to carry out a labor reform that focuses on incentivizing hiring, rather than just on cutting firing costs,” Estefania Ponte, chief economist at Cortal Consors, said by telephone in Madrid.
“The unemployment rate could end the year at 24 percent,” Ponte added.
The euro pared losses after the data were released, trading at US$1.3102 at 9:32am in Madrid, down less than 0.1 percent.
The number of households with all members out of work rose to 1.58 million and the unemployment rate among immigrants was 34.8 percent, INE said.
Some people registered as unemployed might be working informally. The government has said it will crack down on benefits fraud and limit cash transactions, while Spain’s underground economy might be worth the equivalent of about 19 percent of GDP, compared with 25 percent in Greece and 22 percent in Italy, according to Friedrich Schneider, an economics professor at the University of Linz in Austria.
Spain’s economy contracted 0.3 percent in the fourth quarter, the Bank of Spain estimated on Monday, and might shrink 1.5 percent this year, pushing the unemployment rate to 23.4 percent. That forecast is based on the premise that the government will meet its target of trimming the budget deficit to 4.4 percent of GDP from about 8 percent last year.
Spain plans to change the wage-bargaining laws that allowed labor costs to rise as much as 5.8 percent in annual terms during 2009, the year the economy contracted the most in six decades.
The government also wants to encourage employers to use open-ended contracts rather than temporary agreements, the People’s Party said during the election campaign.
Unions and employers reached an agreement this week to sever the connection between salaries and inflation, limiting wage hikes this year and next to 0.5 percent and 0.6 percent respectively, and linking wage increases in 2014 to economic growth.
Rajoy yesterday said the agreement was “good for Spain,” and pledged additional measures in the next couple of weeks, after the IMF, European Central Bank and EU all called for changes to labor rules.
More than two-thirds of the jobs lost in the eurozone since 2008 were in Spain, Eurostat data show, after the decade-long building boom that drew almost 4 million immigrants to the country collapsed.
The bill will aim to help young people into the job market as the unemployment rate among Spaniards under 25 is 49.6 percent, according to Eurostat, more than twice the eurozone average.