How Spain hurts its youth
Álvaro Martín // 22 November 2021
Agenda setting is both important and difficult. Politics tends to veer towards topical issues which are not always the most relevant. Moreover, parties tend to give greater attention to those issues that concern the majority of people whether they are relevant to the country or not.
An example of this is the pandering of subsequent governments in Spain to pensioner pressure groups who constantly demand pension increases. The fact that Spain has one of the highest replacement rates in Europe, and the average pensioner earns 74% more than what he or she contributed (according to the Bank of Spain), means that the system is unsustainable if pensions are not adjusted. In other words, all the accumulated debt will be dealt with by future generations, which does not seem to concern the political class. Today’s topic is not the unsustainability of pensions, but something even more pressing: unemployment and job and training opportunities for young people in Spain.
A quick glance at OECD data indicates that Spain is the third-highest OECD member country with the highest youth unemployment: 35.1% of the labour force under 24 years of age is unemployed, only preceded by Greece and Costa Rica, with youth unemployment rates of 37.1% and 40.6% respectively. However, this is not the most serious issue: according to a recent OECD report, 20% of young people aged 18-24 in Spain are neither studying nor working – just behind Italy, where the figure rises to 24.8%. These figures have been significantly aggravated by the pandemic. This suggests that the difficulty for the average young person trying to enter the labour market in Spain and the dropout rates from vocational training are increasingly higher and both trends are reinforcing one another. In other countries large youth unemployment is often a cyclical phenomenon (in low-wage sectors, young people tend to be laid off to a greater extent in a recession due to the lower costs compared to a more experienced worker). In Spain it is a structural phenomenon: youth unemployment deteriorates during recessions and is further aggravated by the regulation and functioning of the Spanish labour market, among many other factors.
The Spanish labour market and its regulations fail to create mechanisms that facilitate the incorporation of young individuals into the workforce. Temporary and precarious employment, as well as the inability to move out at an early age due to high rent costs in employment-dense areas are related problems. These factors make young people feel excluded from the social fabric and forces society to reflect on a pressing present-day issue.
The main problem lies in the Spanish internship system. To contextualise, since 1988 there have been two types of training contracts in Spain: the apprenticeship contract and the traineeship contract. The traineeship contract is usually for students who are about to finish or have finished their degree and need a training plan with clear objectives and financial resources. This traineeship contract allows the company to offer the worker a salary lower than the minimum wage and the corresponding collective agreement. The bonus companies received for hiring trainees created perverse incentives, which is why they no longer receive such bonuses. The ideal objective is that it should generate higher levels of employment stability in the company, compared to other alternative modalities, such as temporary contracts. By allowing a reduction in wages, the company increases investment in training for its own benefit – i.e. keeps the worker in its ranks.
In order to analyse the effects of this type of contract on the employability of young people in Spain, an interesting study by the ISEAK Foundation shows that more than 50% of those who start their working life with a traineeship contract in Spain end the contract before the stipulated end date. Moreover, of those who do complete the contract, less than a third continue to work in the company where they did their internship. Among those who continue working after the internship contract ends, the probability of signing a permanent contract at a different company is higher than signing with the same company where the internship took place. In fact, the long-term employment stability of those who start with a temporary contract is higher than those who start with an internship contract, indicating a flaw in the internship model. Therefore, the internship contract neither facilitates a quicker entry into the labour market nor guarantees greater stability, thereby failing in its purpose. Two researchers of the ISEAK Foundation study, Sara de la Rica and Lucía Gorjón, conclude that this shows how the internship contract is an element simply used to reduce labour costs at certain times, unlike other countries with more advanced and solidified internship models.
There are many other factors that affect youth unemployment and the high job insecurity of many young people in Spain, but labour regulation is one of the most relevant reasons. Other alternative factors that would help promote youth employment growth include the introduction of clear incentives for business expansion (and not only for business creation), an in-depth reform of the labour market that guarantees greater flexibility, educational reforms that adapt the university curriculum to the demands of the labour market. This article only aimed to give a glimpse of two of the most important problems facing young people in Spain today: unemployment and precariousness.
The original Spanish article was published on Civismo’s website. The article was translated by Andrea Vilaplana.
EPICENTER publications and contributions from our member think tanks are designed to promote the discussion of economic issues and the role of markets in solving economic and social problems. As with all EPICENTER publications, the views expressed here are those of the author and not EPICENTER or its member think tanks (which have no corporate view).