Spain: Why unemployment is so high? – Deutsche Bank

Spain’s structural unemployment rate remains so high and in view of analysts at Deutsche Bank, the answer does not lie with construction jobs or youth unemployment per se. The issues are limited worker mobility between regions, wages not adapting to local conditions and the prevalence of temporary employment, they further add.

Key Quotes

“The 2010-2012 labour market reforms were a move in the right direction in that wage moderation was achieved at a national level, but the reforms did not affect regional adjustment. Internal adjustment between regions reinforces the need for structural reforms - exiting the euro would not solve this problem. A Merkel-Macron alliance promises a change of strategy for Europe: incentivising reforms in good times rather than extracting reforms during bad times; and making funding available, conditional on reforms, to avoid a negative feedback loop via deteriorating public finances.”

“Spain demonstrates the need for carefully designed, locally specific reforms. That implies a highly integrated policy approach by the EU. Until then, cycles will be exposed to structural vulnerabilities and the ECB will struggle to fully normalise monetary policy.”