Employment's recovery in perspective
Spain's job losses were considerable during the crisis that began in 2008. However, job creation has been building up steam since the start of the recovery in 2013 Q3. This Focus analyses to what extent the sharp increase in employment over the first few quarters of economic recovery is a typical phenomenon after a crisis characterised by a substantial adjustment in hours worked, in which case it is likely to slow down once the initial process of personnel realignment has been completed.
Economic recessions associated with a banking crisis and real estate bubble are typically deeper, longer lasting and involve more job losses, especially in the construction sector. This pattern corresponds to the one seen in the US and in Spain in the crisis of 2008 (see the first graph). The employment trend in the recovery, however, is somewhat different between both countries. The US recovery, which began in 2009 Q3, was classified as a jobless recovery due to the labour market's lack of dynamism in spite of improvements in economic activity. US employment fell by 0.3% year-on-year in 2010, the first year of the recovery, while the economy was growing by 2.6%. One of the explanations given for this phenomenon is a lack of confidence in the growth capacity of the US economy, with companies delaying their decisions to hire new workers. Nonetheless the improvement in the labour market consolidated from 2011 onwards as the recovery looked more solid (on average, employment rose by 1.7% annually between 2011 and 2014).
In Spain's case the recovery took longer to arrive but employment has risen considerably since the initial stage and thus it could be classified as a job-intensive recovery. The rate of job creation is even faster if we exclude those sectors hardest hit by the recessionary cycle (real estate and finance) and the public sector, showing that job creation is widespread in all sectors. Moreover, growth in employment during this recovery phase has been significant compared with the episode in 1993 (see the second graph).
In comparison with the Spanish and US cases, employment trends in Germany, France and the United Kingdom have been very different, both during the Great Recession and also in the recovery. In these countries the initial deterioration in corporate expectations was more contained and companies were therefore more willing to maintain their workforce in spite of the drop in demand. In Germany and France, moreover, there was no real estate adjustment while this was less extensive in the United Kingdom than in the US or Spain. During the recovery phase no jobs were created in France. None were created in Germany either during the initial phase of the recovery as, throughout the crisis, companies had kept their staff thanks to mechanisms to adjust the hours worked.1 In the United Kingdom employment continued to grow because strong wage containment meant that the labour factor was still relatively cheap compared with the capital factor, so companies opted to hire employees.2
In short, an international comparison highlights the greater volatility in employment in the Spanish economy. To some extent, as job losses were much higher during the recession, the job creation during the recovery in activity should also be more intense. Given the significant costs entailed in adjusting labour in terms of the number of employed, it is vital to continue making an effort to ensure the labour market has adjustment mechanisms that can better accommodate employment conditions to the economic cycle.
1. See Schmitt, J. (2011), «Labour Market Policy in the Great Recession. Some Lessons from Denmark and Germany», CEPR.
2. See «Mechanisms to adjust employment», MR 04/2015, "la Caixa" Research.
