Examining the drop in the labour force

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September 2nd, 2013

Spain's labour force grew quickly during the boom years. From 16.3 million in 1996 it went to 23.1 in 2Q 2011. Growth was almost non-stop during that period, boosted particularly by women joining the labour market and also immigration. But this trend has reversed in the last two years. The decline, which has speeded up in the last few quarters, now totals 375,000 people and the year-on-year rate of change stands at –1.5%. In 2Q 2013, the drop was not so pronounced, just 76,000 people, but it was surprising as this is the time of year that traditionally sees sharp rises.

The diminishing labour force is helping to contain the rising unemployment rate. Since 2Q 2011, 1.5 million
jobs have been lost while the number of unemployed has risen by 1.1 million. This difference is partly due to the increase in the inactive population of 120,000 people but especially to the fall in the population aged over 16, totalling 255,000. In other words, if the labour force had remained constant, the unemployment rate would be 27.9% instead of the current figure of 26.3%.

This drop in the labour force is concentrated primarily within the foreign worker segment: since the peak
of 3.7 million reached in 1Q 2009, this figure has fallen by 485,000 people to 3.2 million. The movements of
such a group are very sensitive to their job prospects: the increase was considerable when these were favourable in Spain but migratory flows have reversed now that the situation has changed. The improved economic situation in their countries of origin or other European countries has also helped to reverse this trend.

The total number of Spanish nationals employed or seeking employment has also fallen significantly over the last few quarters. Since 3Q 2012, when the national labour force reached a peak of 19.3 million, this figure has fallen by 177,000 people. In this case, however, it has been accompanied by a significant rise in the number of inactive population, a difference of 129,000. But there is also a considerable number of people who, given the economic situation, have decided to emigrate to countries where their job prospects are better. This should not be seen as negative, not only from a strictly economic point of view (as it helps to contain public spending) but especially because these workers will maintain or in many cases improve their training. The great challenge for Spain will be, once the economic recovery is consolidated, to attract this group back as they will possess highly valuable work experience for an increasingly internationalised economy.