The Worst is Yet to Come for Spain

Published on 25/01/2011 in Working in Spain

Yes, this is one of those doom and gloom articles that I sometimes feel compelled to write.  Believe me, I wish circumstances were different but it’s difficult feeling positive for Spain at the moment.

The reason for writing this today is mainly that on reflection on what was supposed to be a big event in Madrid on Monday just gone (24 January 2011), I’ve been left feeling very confused...and yes, I know that’s quite easy.  

Unemployment protest queue MadridThe National Association of Unemployed in Spain had arranged a peaceful demonstration in Madrid.  The plan was to form the longest queue of unemployed people in the world to beat the previous Guinness Book of World record.  It was supposed a 5Km long queue ending at the Palacio de la Moncloa, the official residence of the Spanish Prime Minister, Jose Luis Rodriguez Zapatero.  They needed around 4,500 people to turn up to complete the queue.

Now, considering there are over 4.5 million people officially registered as unemployed in Spain, it appears that only around....get this....80 people turned up for the protest.  Yes, that’s not a typo!

Consider also that the Spanish Prime Minister recently announced that as of February they will be getting rid of the €425 long-term unemployment benefit, you would think the protest would have had a considerably higher turnout.  

Come next month, many unemployed will literally have no income whatsoever.

Or maybe they will...

The failure of the protest to draw more people in to support the initiative is at first slightly difficult to comprehend.  If it had affected me and I lived in or around Madrid I would probably have gone along.  I’m all for peaceful protests, just not so keen when it all gets nasty!

So what kept people away?

I found some possible enlightenment when reading some of the comments left by readers of this particular news story on the ABC website.  

One commenter going by the name of Prieto put it like this:

 

“I think that the supposedly unemployed are in actual fact working, so how were they going to justify their absence?  We are the world champions at this.  They should have done it in the afternoon when more people would have turned up.”

 

Another commenter, Pedro, asks:

 

“where were the representatives of the trade unions?”

 

A highly publicised event against not just the growing unemployment in Spain but also the ending of the long term unemployment benefit, yet no trade unions officials turn up.

I’m definitely missing something here.

Going by what Prieto wrote, although there are 4.5 million registered unemployed, there are in fact many of those people working for cash, and I think there is some truth in that comment.

I remember when the government introduced a €400 “unemployment benefit” for self employed people.  The condition was that you would have to attend a training course 2 or 3 times per week to be able to claim this.  Out of the initial 12,000 places available only around 4,000 were filled.  If I’d not been earning any money back then I would have taken the €400 and attended the training courses.  After all, something is better than nothing.

But at the time the feedback was that people couldn’t claim this money because they were actually still working but for cash only.  They were no longer paying social security or their gestor (accountant) cost to save whatever they could...but they were still working.  

The whole unemployment situation is therefore very badly distorted in Spain.  Spain has and still is in many ways a very cash-based economy.  Whereas before the country managed to function well and grow like this, today it’s a different story.

It’s not all good.

Even though many of the unemployed may actually be working, it’s not necessarily good news for the country.

Less officially employed people means less taxes and social security income for the government.  It also means they may also be paying out the unemployment benefit to these people at the same time.

The government is taking less and giving out more.  There is little incentive for businesses to employ people as it’s so expensive and then very difficult to actually fire or lay off anyone when times get tough.  It’s also expensive to be self-employed.

So until we see some drastic changes from the government to make it easier for businesses to hire and fire and make it cheaper at the same time, I see the situation only continuing to worsen.

The only positive thing at least is that out of the 4.5 million unemployed, it seems many may still be earning some money and are able to survive, which really is some comfort in these toughest of times.

Written by: Justin Aldridge (EOS)

About the author:

Justin has been running Eye on Spain for over 5 years and recently with his partner Susan launched their popular moving to Spain video guide, Spain Uncut.




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Comments:

Abigail said:
28 January 2011 @ 18:28

I have been working for the same company for over two years. Because of current employment law, my boss will NOT put me on contract so I have to be self employed and pay my 250 euros per month social security. It's very difficult to make ends meet but I know that I am better off than most people. Until they change the law here, employers (even those who can afford it) will not start employing people properly and no one will win.


Ed Hall said:
27 January 2011 @ 23:01

Hi Justin, a great article, and a giant can of worms you've opened. The previous comments support your nail on the head summary, and give lots of local knowledge confirmation. However, I fear you are preaching to the converted, and I remind you of the old saying "there are none so blind as those who will not see" I refer of course to the poilticians at the highest level who grew up with this economic model and find themselves so entrenched in it that attempting changes will see them voted out of office, even by their own family and friends. If you find corruption at one level you will find it at all levels.
with the biggest profits at the very top.

A change of government is only a part of the answer, but you have to start somewhere and if you cut of the head the beast will die and create space for something new and hopefully better.

Better for the peoples of Spain , that is.



Keith said:
27 January 2011 @ 00:58

I have been living on and off in Andalucia for 2 years, having previously holidayed there for around 30 years.
I am now shocked at the cost of living compared percentage wise, to what it used to be. In the current recession, in England, most shops have drastically reduced their prices in order to keep a decent cash flow, however, it appears the Spanish don't recognise this and INCREASED their prices to try and take the same amount of cash from less and less people!!!!! Will somebody please teach them good business sense???? We can now fly here for virtually nothing, and then can't afford the things in the shops!!!!!! Absolutely ridiculous, and this "ethos" on poor business acumen has got to stop !!!!



Vicente said:
26 January 2011 @ 21:46

A country like Spain will not tolerate 4 millions of unemployed. You will notice a lot of social unrest in addition to a large increase of crime. Nothing of this happens in any Spanish City or town.The answer to this has been clearly spotted in this article.


Laurence said:
26 January 2011 @ 17:54

Excellent article. Its all too true that the ´Black¨ economy is still continuing to thrive. However, its the long term impact of less paid in and more paid out syndrome. If Spain continues like this it´ll go under and there won´t be any money in the pot at all.
Most of the people we know of working age claim unemployment benefit AND WORK on a cash in hand basis. When questioned about the ethics of it all , most shrug their shoulders and say ´its Tradition¨ and whats the harm? When I try to explain the seriousness of their actions they say ´its others who are to blame , not just me!`
Until this present goverment and future ones too, actually looks at this serious issue,´Spain will continue to limp along like they´ve always done.
Come on Spain ´Get your Act together` Jobs can be created by heavy investment. You´ve done it before, you can do it again ?



Rob said:
26 January 2011 @ 17:48

I'm back in the UK now. I gave up after trying for 2 years to get a business off the ground in Spain.
Trying to set up a business in Spain is mind numbingly frustrating. It takes time, a lot of time, even more patience and it is also very expensive. The whole system in Spain is geared up against those who want to start a business and keep eveything legal.
The entrepenurial spirit is knocked out of you before you can even get off the ground. And then you have the likes of Telefonica and other utility companies to deal with.
"You can have a phone connected on Friday" telefonica told me. Trouble is they don't tell you which Friday. It took me 4 months and that was in an area with good infrastructure.

Start a business in Spain? You have to be either brave or foolhardy but I wish you the best of luck. The paperwork and dealing with officialdom is mindboggling. Just remember, if you are starting a business in Spain it will take you at least twice as long and cost twice as much as you expect it to.

Don't take risks with the revenue departments like a friend of mine. He was moored up in a marina in southern Spain enjoying his retirement when he was spotted taking a cash payment from a fellow boater whose boat he was helping to mend. The Tax Inspectors impounded his own boat which he lived on until he paid a 25,000 euro fine.

Rob



Chris said:
26 January 2011 @ 15:09

Intersting topic, Spain will continue to have very high unemployment until the employment laws and tax system is changed, there are no incentives what so ever for companies from abroad to invest here.

If you have to pay €250 to be self employed regardless if you have earned anything that month, is a complete joke and its no surprise people work illegally cash in hand.

I have lived here permantlly for 10 years and have integrated into society and own property here but if things dont improve soon economically ,i too will be forced to move on as will many others, to be replaced by who?

A change of government is needed asap



Hannah said:
26 January 2011 @ 12:57

My partner runs a business in Spain currently with 6 employees. All on permanent full contracts with their taxes and social security paid. Recently one of the employees informed us he was leaving to set up on his own business and he was stealing some of our clients. He then demanded a letter of redundancy, holiday pay, redundancy pay, 2 months notice but did not want to work it. Unfortunately the government sided with the employee and we have had to pay out. The gentleman concerned is claiming benefits out of the system, taken money off us AND working in cash!!!!Because of this myself with my two children had to leave Spain to come back to UK leaving my partner there alone trying to keep the business afloat. Immediately after, another employee also handed in his notice immediately saying his daughter was ill in Argentina so he was returning there. He was paid all his money to date but then a week later (24hours before he got on a flight to Argentina) a lawyer contacted us to appear in court for not paying him redundancy, notice period or any wages for the last 3 months (which WERE paid)! HE IS NOT EVEN IN THE COUNTRY AND NOW REPORTED TO BE CLAIMING BENEFITS IN ARGENTINA!!! The employment law in Spain is ridiculous and has made us realise there is no incentive to work legitimately and within the laws. The law sides we with employees to much and makes it easy for them to screw the system as well as employers. We have decided we might have to liquidate the company as we have no money left and have had to sell EVERYTHING to pay off the workers (who chose to leave on their own accord to claim benefits). If we proceed with this we are making a further 6 people out of work as well as my partner! Where is the justice in all of this? The attraction of the sun and the more relaxed safer life for our children is no more...... Spain is not golden...... its BLACK!


michael evans said:
26 January 2011 @ 10:05

Things do look bleak, but the same is true of Britain, where I still spend most of the time. Apparently we are going to have to endure a real wages squeeze the like of which hasn't been seen since the 1920s.
Things will get better, history and experience surely reaches us that but the pain may be great for a while yet.
Lets be positive and think of and enjoy the good things about Spain and why we chose to buy there.
PS cheapness is not a reason it was a bonus!



Jack D said:
26 January 2011 @ 09:46

Yes the above is all true but what about the other side of the coin? People are forced to work for cash when they would prefer to pay taxes to get unemployment and health cover but very few employers are willing to pay it.
How hard is that to enforce? Excuse me sir/madam I see you have 10 staff in your busy bar. Where are their contracts? Job Done.
As for the start up I tried to get a business going but the Spanish tax everything or add charges to it and eliminated my profit margin. 250€ a month for autonomo (self employed status) even if you're not making anything, then you have to put your accounts through a gestor, even if there's nothing to declare - more cost.
I honestly believe that the Spanish politicos do not understand basic economics. They need to look at how countries have survived and even succeeded out of recessions - it's not by taxing people trying to start businesses and hoping a massive boom might happen again in construction. Those days are gone.
They also don't believe in free trade with rampant protectionism keeping the prices of electronic goods, cars etc. illegally.
I too love Spain and I want to stay here. I'm no economic expert but where's the way out?



Mike T said:
26 January 2011 @ 09:20

Justin, Yet Another well worded article from you've written that hits the nail on the head!! Having lived in Spain for 3 1/2 years now I can't ever remember NOT paying for a work in Cash!
The Black Economy is alive and well in Spain as it always has been, I guess?

But, We should also be aware that basic wages in Andalucia are very low and family's must be suffering in what is a very expensive Region to live! I know a young lady Teacher who takes home less that €1000 a month, not a great return for all the years of studying for your chosen career!



Rosie Reay said:
26 January 2011 @ 08:51

Justin you may think this is a negtaive article but Justin I salute you for taking a positive stance and reporting on this issue.

Now lets start a list of positive suggestions on how we can help the government to turn this unemployment issue around.

# In Holland you have to prove you have applied I think it is for about 3 jobs in order to claim benefit/ or write to firms asking for work
# Why don't they insist that in order to receive your unemployment benefit you have to do so many days or half days or hours a week doing voluntary community work in field whereyou have a talent or the ability tomake a difference
#why does the Local Mayor not encourage groups to form - socil network - brainstorm on the ways or means to get back into employment or to "create jobs through group ideas"
# If you look at Silicon Valley - I know a whole different economic lifestyle they had - before losing their jobs- these guys know there are no jobs out tehre for them in firms. So What do they do? They get pro-active. They meet withothert folk- folk they dont know but one thing in common -they dont have a job. But they dont give up and expect the state to support them - it doesnt happen. They have the fastest growing new work environment in "start ups" usually a 2 man band. After all, Silicon Valley's nickname is The Garage.Why? Because it literally did start up in someone's garage with 2 minds brainstorming.
# This doesnt have to be done in high tech only. Agricultural or manul workers can do the same.
# I've an idea forming at the back of my head but must dash to an appointment. Will beaver away at it and then report back or write a article relating to it. But look fwd to peoples reactions and thoughts.

Remeber we are the masters of our own success. We re responisible for it. Make it happen. Dont give up. Be passionate about whatever skill you have or learn new ones and teahc those who dont have your skills or knowledge.

Go grab your dreams and quit moaning. Moaning wastes time. Use that to think with your friends and communities on What can we do now and tomorrow and the next day?

RosieREay@FodenPress.com
Twitter@RosieREay
RosieReay in Catalunya www.EbroVoice.com



midasgold said:
26 January 2011 @ 08:51

The other BIG problem is that the TRUE position of our (Spanish)
banks which has still not been published.The government are till keeping the debt heavy position away from us all.



Faro said:
26 January 2011 @ 08:31

Very good article and spot on.

Spains harsh tax system and its employment laws fuel the black economy.

My experience is everyone at all levels is somehow contributing and participating in this cash/black economy.



Steve Hall said:
26 January 2011 @ 01:56

I fear that both Justin and Jacqui may be on the button. Spain is in a mess. Few admit it and when someone tells the truth à la, "Not even God pays taxes in Andalucía" everything kicks off.

The hope for the country must be a new government but if it is Rajoy , where is his Rubalcaba? The pensions time-bomb is ticking fast in Spain and no amount of high speed railway lines are going to gloss over the cracks.

It is a country I love but I fear tough, tough days ahead

Steve



Jacqui Salazar said:
26 January 2011 @ 01:18

My comment is: Spain was under a State of Emergency-type Governmental rule until recently during the air traffic controllers strike and for an extended amount of time afterwards. This gives the police many more powers than under "normal" circumstances - that could be the reason people did not want to put their necks on the block. What do you think ?

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