July 16, 2013

How Spain got its unemployment

Of all developed countries, Spain has the most cyclic and (most of the time) the highest unemployment, and the largest proportion of workers on contracts of limited duration (with their associated low productivity and low wages). This is due to our peculiar and perverse system of collective bargaining. The problems arising from this system are exacerbated by the high labor taxes that penalize work, the generous unemployment benefits that reward unemployment, the high cost of firing permanent workers (including severance payments set by law, and lawyer fees and other costs related to the judicial oversight of dismissals), and strict limits on the concatenation of temporary contracts that lower productivity and thus wages. Other countries also have terrible labor laws. But why are Spain's labor laws the most terrible of all?

Because Spanish voters want them. A recent poll compared opinions in Spain to those in the Czech Republic, Denmark, France, Germany, Italy, the Netherlands, Poland, Sweden and the United Kingdom. Spaniards show the lowest support for a "market economy" (page 30 of the report). Overall in the ten countries a minority say that the government must control wages (29% of respondents) and ensure that the unemployed enjoy a "dignified" quality of life (39%). In Spain the respective proportions are 51% and 75%. Spain is the only country where a majority say that "wages must be more equal, even if this means that workers who put less effort and workers who put more effort earn similar amounts."

The following chart relates the proportion of respondents in each country saying that wages must be more equal and the unemployment rate in that country:


The upper right dot corresponds to Spain. Spain is also the only country where a majority of respondents say that unemployment is the biggest problem in their country. Spanish respondents attribute the responsibility of their current crisis to the typical scapegoats (banks and politicians) more often, and to citizens and worker unions less often, than the average respondent of the ten countries. Spaniards are less favorable to making labor markets more flexible as a way to get out of the crisis than the average respondent of the ten countries, and more favorable to raising taxes to high-earning workers (page 42). Unfortunately, the report does not detail the numbers for each country.

So, according to the poll, Spaniards ask for labor laws controlling wages and making them more equal, get unemployment as a result and believe that unemployment is the biggest problem in Spain. I want to add another bit of irony to the situation, and it doesn't come from this poll. Since the outset of our present crisis, there has been an increase in the number of Spaniards moving to northern Europe to get a job. They are leaving behind the labor laws they voted for and seeking prosperity in the countries that rejected those laws. Spanish news outlets report that Spanish emigrants are being exploited by wild west labor laws and greedy capitalists in Germany and elsewhere.

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For the data in the chart there is a Spearman correlation of 0.7. A Spearman correlation is particularly suitable for this data because it doesn't give special weight to the outlying numbers for Spain. In other words, 0.7 is not an artifact of Spain's bizarreness. If the countries in the dataset were independent, which they are not for geographical reasons, and if there were no relationship between opinion on wages and unemployment rate, the probability of getting this number would be smaller than 2.5%.

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