Unemployment In Spain Essay

This article, published in Bloomberg, talks about the rise of unemployment in Spain in the final quarter of 2012, caused by the government’s “deepest budget cut in the country’s democratic history.” Statistics shows us that the number of unemployed people rose from 25.01 percent to 26.02 percent, which represents about 6 million people, in the time period of three months. With the unemployment rate increasing by 1.01 percent, it “has lead Spain to become the third of the euro region’s which unemployed”. The unemployment rate can be defined as the number of people unemployed as a percentage of the labour force. Such an increase can have major consequences on the spanish economy, such as a loss of output, increased benefit spending and social problems.

The unemployed are the people who are registered as willing, able and available for work at the market-clearing wage, but who are unable to find work. Spain’s unemployment situation is also known as cyclical unemployment. Cyclical unemployment arises due to fluctuations in the nation’s business cycle, it can also be referred to as demand deficient unemployment. It occurs when a contraction in private or public spending reduces AD and leads to a fall in national output. A fall in national output can be crucial on an economy as the demand for labour falls and there is downward pressure on wages and prices. Regarding Spain, the government budget cuts therefore explain the rise in unemployment rate over the three month time period. The graph below shows us the situation in Spain.

Due to the budget cuts, we can see that the aggregate demand shifts from AD to AD1, reducing national output, and creating a recessionary gap. As aggregate demand falls for goods and services, firms mu...

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...e the unemployment level. Spain could therefore reach their “2012 goal of 6.3 percent of GDP”.

According to Spanish Deputy Economy Minister Fernando Jiminez Lattore, “the concentration of a large part of the budget cuts approved to boost income and cut spendin, as tax on sales was raised and public sector employees’ year-end bonus scrapped.”. The Minister claims such measures were taken in order “to regain investors’ confidence.”. If these measures to in fact work, then in the short run, for Spain’s economy, they will be able to save more savings which can later be used for public spending. However, if it doesn’t, then in the long run, Spain will suffer with a decrease in national output or real GDP, a decrease in tax revenue and a bigger increase in budget deficits which can eventually lead Spain into a deeper recession and an increase in the unemployment level.