Job creation as a way of reactivating the European economy

Julian De Diego

Lawyer. Employment advisor of companies and chambers of business. Academic Counselor for Libertad y Progreso.

EL CRONISTA – Curiously enough, as one of the Covid-19 post pandemic side effects, signs reading “Sorry, we are closed due to staff shortage” are seen at many stores in Madrid. This is an extremely complex scenario, where Spain has more than three million jobless people: in three years’ time this country went from deflation (-0.23% in 2020) to an inflation rate that may reach 10% by the end of 2022. The increase in commodity, energy and gas prices may exceed that estimated rate.

Now that the economy has recovered from the “peak” of the pandemic, there is the concern over the direct and indirect impact of the Russian invasion of Ukraine and the economic effects of war. As a result of the international sanctions imposed by the core countries, the sales of luxury companies have dropped by more than 25%.

The Spanish Executive led by Pedro Sánchez (Socialist Workers’ Party) [PSOE] has decided to create almost 45,000 new jobs in government agencies a week ago. As a matter of fact, last Tuesday the Council of Ministers approved a record number of job openings in the civil service: 44,788 positions in administrative sectors, security forces and general services.

The Government is heavily criticized for being bureaucratic, marking a clear contrast between system modernization, automation and digital transformation, and the subsequent reduction in staffing at all agencies.

How it is possible to have such a shocking phenomenon of staff shortage in today’s scenario where there is a record high unemployment rate, and heavy accusations of opposition parties claiming the official data have been manipulated or embellished to hide the truth?

The truth is that just undocumented foreigners, illegal immigrants, and marginalized groups take up vacant positions, because stores that cannot do business as usual offer wages around €500 or €600 while Minimum Wage amounts to €1166.70 and the average salary at the private sector is around €1800.

In fact, minimum wage in Spain is €1166.70; in Germany, €1621; in Great Britain, €1708.70; and in France, €1,603.10.

The truth is that labor costs are not compatible with reactivating small businesses, especially the so-called sole proprietorships, small family or one-person businesses that provide a wide range of services to the community, and in particular in the tourism sector, which in Spain too has become one of the key driving forces for rebuilding all activities that have been crippled by the pandemic.

It can be said that in general the average salary in each industrial sector is made up of minimum wage plus 50%. Consequently, in Spain if minimum wage is €1166, the average salary (in any trade, craft or profession) ranges from €1700 to €1800, and the average salary at top-level corporations is around €2200 to €2600. When a small business offers wages of around €500 or €600, workers cannot make a living; the market basket of consumer goods and services for a single individual without dependents is
worth €35 a day (or €1000 per month), and in the case of individuals with dependents, it is around €50 a day (or €1500 per month).

Civil service in Spain has increased by more than 30% in the last five years, mainly funded by the aid received from the financial system of the European Economic Community, regardless of the situation of its economy, which has fallen significantly in 2020 and 2021, and has started to show some signs of recovery in the last eight months.

While Spanish autonomous communities have increased their staffing by 10% or 35%, none of them can be compared to the increase in civil service at Central Government, which exceeded 39%.

These policies are only possible with external financing, and oftentimes the States receive regional subsidies or aid, which allow them to address policies that at first glance seem to be contradictory and have a strong element of populism.

In this scenario, the new forms of hiring under the recent labor reform in Spain, which was promoted by the Socialist Party –PSOE-, are playing an important role.

When it comes to wage and employment policies in the core countries of the European Union, short-term decisions do have a limitation, namely, funding. If the economy does not grow, this gigantic State will no longer be a plausible solution, but rather, inevitably, the cause for the next regional crisis.