Spain's Shrinking Labor Force

On Jan. 23, Spain's statistics office announced that while 8,400 fewer people were registered as unemployed in the fourth quarter of 2013 compared to the third quarter, the country's unemployment rate remained essentially unchanged -- it rose slightly to 26.03 percent from 25.98 percent the previous quarter. This is because the Spanish workforce keeps shrinking. Several factors contribute to the shrinking labor force. Since the beginning of the European economic crisis, Spain has seen record levels of foreigners and nationals alike leaving the country. Also, as the Spanish population ages, many people are retiring, and the informal economy (which is extremely difficult to measure, but according to some studies represents 20-25 percent of Spanish gross domestic product) presents an alternative to joining the official workforce. Lastly, some people have simply stopped looking for a job.

This trend is important for the future of the Spanish economy, because a smaller workforce means, among other things, a smaller number of people paying work-related taxes. It also means that more and more people have lost hope of finding a job and stopped looking. This ultimately reduces their chances of finding a job if they decide to resume their search, due to the longer period of time since their last employment and the potential loss of skills or expertise. Finally, the Spanish labor market is becoming more unstable; in 2013, the number of part-time jobs increased while the number of full-time jobs dropped. As a result, 2014 could see a marginal reduction of unemployment in Spain, but it will stay at critically high levels for the foreseeable future and remain a key political and economic challenge for authorities in Madrid.

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