Sunday, March 10, 2013
The Spanish unemployment mystery (part 2)
Now at the other end of the cycle with respect to our last entry, the chart shows the decline in GDP for every job lost since 2008.
Readers will note that we only included years in which GDP has declined relative to 2008.... and both Germany and Austria are missing. The figure for the former is over 1.4 million euros - a reflection of the fact that their unemployment insurance is in fact an employment subsidy. In the case of Austria, it is 530-odd thousand euros - too big for the graph to scale and possibly attributable to something similar. In the case of the Netherlands, employment increased in 2009, despite a decline in the general economy. We'll just pass on it and start with 2010. Countries disappear from the graph as GDP rises above 2008 levels.
Catching our eye again are Spain and Portugal. Just as it took little GDP growth to produce a job in the 1995 to 2008 period, it required a very small drop in a recession economy to remove one. By the end of 2011, a mere 11,000 euro decrease in GDP corresponded to a lost position in Spain. In the case of the latter country - the amount is a supremely silly 2,600 euros.
Neither number is particularly credible unless one makes the assumption that unemployment insurance benefits and other subsidies are very high relative to wages. Better to think of both as signifying a massive return to an underground economy.
A start in the correct direction might be to compare Spain with that other real estate bust economy - Ireland. Calculating backwards, had Spain reduced employment at the 79,000 euro GDP rate job losses would have amounted to 310,000 instead of the official 2,155,000. It's very far from a perfect calculation, but it should point one to the right analytical path