Spain Says Jobless Rate Isn’t So Bad : Underground Economy Soothes 20% Unemployment

Spain’s unemployment rate of 20% is Europe’s highest, but the Socialist government says a thriving underground economy and tight-knit family structures have removed the sting from a potentially explosive situation.

“The statistics are correct; we have 20% registered unemployed,” Labor Ministry Secretary General Alvaro Espina said in an interview.

“But this is a far cry from saying 2.6 million employable Spaniards are lacking a source of income.”

Unemployment benefits in Spain last just two years, and the percentage of young jobless far exceeds the national average in some areas. But unofficial estimates say more than half those who register in unemployment offices earn some form of income.

“When you consider underemployed workers, housewives and working-age children living at home, you get a far less dramatic picture,” Espina said. These categories accounted for about 65% of the total number registered as unemployed.

Not Optimists

The Socialists can claim success on most economic fronts since they were elected to power in 1982, but they admit their image has been tarnished by a failure to reduce unemployment. They pledged to create 800,000 new jobs in their four-year term.

“We don’t pretend to be optimists in this ministry,” Espina said. “Unemployment is going to remain high this year, but there is a clear downward trend in the rate of job losses.”

The increase in job losses was 4.1% in December, 1982, when the Socialists took office. This fell to 1.9% a year later and stood at 0.5% last December.

The Socialists deployed a hard-nosed austerity program, slashing inflation in two years from 14.1% to 9%, turning a $4.1-billion balance-of-payments deficit into a $2-billion surplus and cutting the state budget deficit to 4.8% of gross domestic product from 6%. But the economic improvement was achieved at the cost of a rise of 1 million in the number of people registered as unemployed.

“We couldn’t afford to take a shortsighted view of the problem,” Espina said. “Economic growth was always considered the domain of the right, while the left was supposed to concern itself only with social issues. That no longer holds water.

“I don’t want to point to anyone, but there are other governments in Europe whose strict adherence to socialist economic policies left their party in a shambles,” he said in an implicit reference to neighboring France.

The underground economy in Spain has helped keep the lid on social tensions that have at times run high in areas affected by wholesale closures in the shipbuilding and steel industries.

“Almost all construction work today is done through subcontracting to unregistered workers,” a Madrid construction company manager said.

Skeleton Staff

He said most contractors kept a skeleton staff on the payroll and hired unemployed workers on a piecemeal basis.

“The obvious benefit is the saving on social security, which is equivalent to 40% of the salary,” he said.

In the construction industry, the number of “self-employed” workers has risen by 24% during the past five years while the number of salaried workers has dropped 30%.

In labor-intensive sectors such as textiles and footwear, firms close and reopen overnight on an underground basis. They then produce at large discounts, driving more firms underground.

Espina blames the high unemployment on a lack of foresight by right-wing dictator Francisco Franco, who died in 1975.

“In the 1960s, when Spain outstripped the rest of Europe with its 7%-a-year growth rate, little thought was given to Spain as a world trader or future member of the European Community,” he said.

Spain and Portugal are to join the Community next Jan. 1.

Coddled by almost four decades of protectionism and skeptical of Spain’s new democracy and fledgling market economy, Spanish businessmen have held back on new investments that would stimulate growth and create jobs.

Two-Year Pact

“We have now provided the framework for investment. It is now up to business to do its job,” Espina said.

Eighty percent of Spanish workers are employed by the private sector.

To encourage private investment, the government last year talked its socialist trade union arm into signing a two-year economic pact weighted in favor of business.

The government is also offering incentives to encourage firms out of the underground economy. These include low-cost loans, social security and tax exemptions and more flexible labor laws, Espina said.

He rejected charges by the rightist opposition that the Socialists’ failure to stem unemployment had led to rising social alienation, with a big growth in crime and drug abuse.

“I don’t know of any statistical system for equating the rise in unemployment with these phenomena,” he said, adding: “This is not a new problem. But a democracy is by definition more tolerant than a dictatorship. Not long ago jobless workers were herded off the streets by the police.”