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Why is there a high unemployment rate in Spain?

For a decade the Spanish economy was in overdrive but it suddenly slowed in 2008. After a five year recession the country seems to be making some headway and appears to be finding its way out of recession so why is there a high unemployment rate in Spain still?
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Economy based on bricks and mortar

Between the year 2000 and 2009, Spain built 30% of all new homes created in the European Union but its economy only generated around 10% of the EU’s GDP. A good deal of these new homes were built for those emigrating from other parts of Europe who heading to Spain not only for the great weather but because of the country’s low interest rates. Home ownership was seen as a good investment in those days as it was a time when 85% of the country owned their own home. With 60 million tourists per year, there was plenty of foreign money around.

Property bubble burst

As construction is a labour intensive sector these new homes created a lot of work for Spanish workers but when the bubble burst, they were left without work. To understand how important this period of house building was to Spain, you should consider that between 2002 and 2007 the total number of people in work rose by 4.1 million, which was a far steeper increase than any other nation in the EU experienced over that period. This period created three times more jobs than the previous 16 years had, so the nation’s workforce expanded exponentially.

Labour laws

Even at the peak in 2007, Spain had an 8% unemployment rate. While the laws made hiring workers very easy, redundancy payment regulations offered more money to workers in Spain than in other comparable nations. This meant that when the work was available, most firms offered temporary contracts so they weren’t burdened by massive redundancy payments.

Banking crisis

There were 45 regional savings banks, which accounted for more than half of the country’s financial institutions at the time. Politicians and businessmen attached to them made reckless loans to developers and therefore took risks that led to the banking crisis and further job losses. When the property sector crashed, it took these banks along with it.

House of cards

There are probably dozens of other smaller reasons why Spain went into recession and why they currently still have high unemployment numbers. Perhaps the rapid creation of new jobs that was experienced between 2002 and 2007 gives some hope that when a recovery comes it will swiftly create new jobs.

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