Spain – The labor market deterioration will have long lasting effects

Month after month the Spanish labor market is becoming more and more unbalanced. The number of unemployed is 6 million but the most frightening figure is that the proportion of unemployed with a duration above 2 years is 35.1% (first quarter of 2013). It is by far the largest proportion on the chart below. As new flows (less than 6 months) are high but stable the proportion of unemployed with long duration will increase in the coming months by transfer from other categories.
To have a comparison with France which has also a high level of unemployment, the duration of unemployed for more than one year was 58.5% in Spain during the first quarter of 2013. It was 39.9 % in France in March 2013.

When duration increases, unemployed lose their employability. They lose part of their ability to work and they face a stronger competition from new entrants on the labor market. The probability to find a new job decreases rapidly with the unemployment duration. The longer the duration, the lower will be the probability to find a new job. This population will stay unemployed well after the start of the growth recovery.
The social cost associated with this situation will be high and long lasting. This population will need resources, financial resources. This can be provided by a solidarity scheme that will mutualize the cost to help this population. This scheme will remain for a very long period as the probability to find a new job is very low even after the start of a recovery. This help can be reduced as time goes by and then everyone will have to find his own resources to survive.
The Spanish society equilibrium will change and a direct consequence will be a lower level of health as probably a large part of long term unemployed will not be taken in charge collectively and because their level of resources will be lower.
The employment rate is 27% in Spain during the first quarter of 2013. It’s dramatically high and the social cost associated with it will be high and long lasting. This collective cost will force Spaniards to deeply renew their collective rules and the model that has been built until now.

Spain-2013-Q1-unempDuration