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Cablegate: Unemployment Rate Inches Up, Immigrants

VZCZCXRO5331
RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHMD #0047/01 0171754
ZNR UUUUU ZZH
R 171754Z JAN 08
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC 4077
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHAS/AMEMBASSY ALGIERS 3988
RUEHBO/AMEMBASSY BOGOTA 5323
RUEHCV/AMEMBASSY CARACAS 1277
RUEHQT/AMEMBASSY QUITO 1399
RUEHRB/AMEMBASSY RABAT 6084
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 02 MADRID 000047

SIPDIS

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON EFIN ETRD PGOV PREL SP
SUBJECT: UNEMPLOYMENT RATE INCHES UP, IMMIGRANTS
PARTICULARLY AFFECTED


1. (SBU) Summary. As unemployment rates begin to inch up,
voters have yet another reason to worry about the future of
the economy. Spain's unemployment rate hovers at a little
over 8 percent (low by historical standards) with immigrants
and young workers being the most vulnerable to losses.
Although unemployment increases have been minor so far, it is
generally agreed that the housing construction slowdown will
cause greater unemployment in 2008. GOS officials continue
to be optimistic and have told Emboffs that growth in other
sectors will offset construction unemployment. However, it
is questionable whether recently laid-off construction
workers, many of whom are low-skilled, will be absorbed by
other sectors that require higher skills. Unemployment
concerns have become fair game in the electoral arena. End
Summary.

--------------------------------------------- ---
UNEMPLOYMENT RATE INCHES UP, IMMIGRANTS AFFECTED
--------------------------------------------- ---

2. (U) According to Ministry of Labor estimates for the first
three quarters of 2007, over 640,000 new net workers entered
the labor force, while 615,000 net jobs were created. In
other words, both employment and unemployment increased. The
industry and services sector experienced overall gains while
agriculture and construction experienced net losses. Spain's
National Statistics Institute indicates that unemployment
increased to 8.05 percent during the third quarter, slightly
higher than the second quarter rate of 7.95 percent. Though
this increase can be considered slight by some, the universal
expectation is that unemployment will increase into 2008
following a recent housing construction downturn.

3. (U) With a glut of properties and lower housing demand
sharply reducing housing starts, construction workers are
finding it more and more difficult to hold on to their jobs.
The most affected by this trend are immigrants. According to
the Ministry of Labor, 3.2 million immigrants currently take
part in Spain's labor market (compared with 500,000 in 2004),
a quarter of whom are working in construction. Unemployment
estimates for immigrant workers vary, but the Ministry of
Labor and the National Statistics Institute's labor market
survey agree that immigrant worker unemployment increased 24
percent in 2007. Media reports have drawn attention to this
growing problem, highlighting the increasing number of
immigrants on Spain's unemployment rolls.

4. (U) Younger workers are also more likely to be affected by
any job slow-down. While established workers tend to work
under "permanent" contracts that provide extremely generous
separation benefits, younger, less experienced workers are
often hired under temporary contracts which do not contain
such benefits. Those workers not covered under permanent
contracts are easily laid off in tight financial times.
(Note: Roughly 1 out of every 3 salaried workers in Spain
works under a temporary contract, a level which unions,
business associations, and the GOS have worked to address
starting with the 2006 tri-partite labor negotiations).

--------------------------------------------- -----------
INFLATION AND RIGID LABOR CONTRACTS MAY STUNT JOB GROWTH
--------------------------------------------- -----------

5. (U) Recent inflationary pressures, which have forced some
businesses to increase salaries based on labor agreements,
may also stunt future job growth. Spain's leading business
association, CEOE, recently estimated that businesses would
have to pay an additional 3 billion euros in wages in the
upcoming year to adjust for inflation (4.2 percent in
December). Over 45 percent of the labor force is covered
under collective bargaining processes, seventy percent of
which are covered under clauses that automatically adjust
salaries in case of high inflation. Labor contracts in
Spain, considered to be some of the most rigid in the world,
require that employees be paid up to 45 days per year worked
if they are laid off (maximum 42 months).

--------------------------------------------
MINISTRY OF LABOR NOT WORRIED ABOUT JOB LOSS
--------------------------------------------

6. (SBU) During a January 11 meeting with Econoffs, Alfonso
Prieto, Deputy Director General of Employment Studies at the
Ministry of Labor, seemed less concerned about the job growth

MADRID 00000047 002 OF 002


slowdown. He acknowledged that job growth was indeed slowing
but maintained that employment would still grow at strong,
albeit more moderate levels. He pointed out that even with
unemployment increases, the current rate was still one of the
lowest that Spain had experienced in years. He opined that
unemployment would not reach 9 percent anytime soon, and said
that unemployed construction workers would be absorbed by
growth in other areas. (The economic team of one of Spain's
leading banks expressed a similar view to us privately a few
months ago.)

7. (SBU) Despite this optimism, Prieto acknowledged that job
creation was not keeping up with demand. With average
immigrant worker populations increasing by half a million
annually and with the integration of more female workers,
demand for jobs is outpacing current levels of growth. He
also agreed that unemployed construction workers generally
possessed a very low skill set -- one that would be difficult
to transfer to other areas. However, Prieto mentioned that
the Ministry of Labor would be considering training options,
and on January 14, Second Vice President and Minister of
Economy Pedro Solbes announced that if re-elected, the
government would provide training to unemployed construction
workers.

-------
COMMENT
-------

8. (SBU) Overall, unemployment increases are minor right now,
although it may not seem so based on local press spin.
However, the increasing levels of unemployed immigrants and
the increasing, even if minor, dependence on unemployment
benefits have gained prominence - perhaps hinting at a future
immigrant backlash. Furthermore, though rates are moderate
now, the threat of higher future unemployment has become a
concern. Meanwhile, the Socialist government is trumpeting
past employment gains (3 million jobs over the past 4 years)
with a promise to increase jobs by 2 million in the next four
years if re-elected. The Socialists will also likely point
to the lower unemployment rate, which at 8 percent is more
than 2 points lower than when it took office from the PP.
However, in less than two weeks, 2007 fourth quarter
statistics will be released, the results of which will likely
provide more fodder for the PP to challenge the PSOE
government's economic stewardship. All of this points to a
slowing economy and a rising level of job losses. The
immediate question is whether these adverse economic
indicators will be sufficiently evident to have an impact in
the upcoming General Elections. Beyond that, there is
agreement that the Spanish economy is slowing, but it remains
to be seen whether it is a downward glide or a more abrupt
and hard landing.
AGUIRRE

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