My version of why the Spanish economy is failing

There is much talk about how the Spanish economy is failing, that there is not enough jobs and how in order to resolve the issue, Hacienda increases tax rates (like the Spanish restaurants increase prices when there is less visitors in order to compensate for the lower income), the Social Security system creates incentives for employment that range from 10 to 40% discount, but then require that you employ someone with several kids, out of work for several years, supporting the grandparents and must have at least one leg missing and you will probably get a better discount if they are disabled too (that’s if after all these criteria they are actually fit for the job you need them to do), but if they fail to work or produce the work quality that is expected of them, your discounts are nulled and you are fined for having employed them. Talking with several colleagues and friends there is huge problems with things like “salario de tramitacion” and firing staff, costing companies from 3 digits to nearly 6 digit numbers for people who I would call nothing less than the thugs of the society, destroying the companies that have once fed them and abusing the system and costing the jobs of their colleagues and judges who abuse the law to screw and destroy the company that is feeding several other employees without consideration to the fact of why the employee was fired or laid off in the first place.
But let’s forget all that, the above results that no one in their right mind will employ and the government knows that. The little they have tried to improve on the law is just too little to make a real difference and even then many employees still cannot appreciate the benefit of these small changes.
The next big move for the government is to create self employment and self-employment is remarkably important in the Spanish economy and labour market. It accounts for around 3.6 million people, out of which 2.2 million are self-employed without employees (representing 18.3% and 11.1% of the total Spanish workforce, respectively). (Data obtained from IKEI and CIREM institute, published on 25 Feb 2009). The current unemployment level stands at 3,923,603 + 1.4million in training courses (Sept 2011) figures and most recently Financial Times reported almost 4 million or approximately 25% (I quote this part from memory). So incentives have been set up helping unemployed people start up their own businesses and there is a lot of talk and different types of funds available for this sector, however there is something seriously wrong with this model.
As employers (in particular the small SL or the self employed with employees) are forced to reduce work force because of the markets shrinking and reduced profitability and extremely high social security costs, the government is helping the unemployed workforce to become self employed. Well that’s good, but when that work force starts competing with the establishments and companies that were employing them, because they have now received subsidize and incentives, the first problem that arises is that a business that was upto now able to make ends meet starts having to share part of the available market with a new competitor who can undercut them because they have less overheads and also are subsidized. Resulting factor is that the self employed can destroy an existing company with several employees causing even more unemployment and damage to the economy, but in most cases, what happens is that the existing company or the self employed person will be left with no choice to resort to working black. Furthermore the self employed has gone into self employment because they had no other choice and in many cases the lack of posterior support, expertise and drive will only bring the show to an end when the incentives are over (and I am quoting from the people I know who received funding of some sort or another and stopped once it was over).
In fact the reality is on a weekly basis I receive numerous CVs from self employed people, technicians, programmers, accountants, receptionist, most of which are unemployed, some also collecting unemployment and many working black and looking for a stable job with a contract.
According to the Ministry of Industry, Tourism and Commerce, statistical report (Published in 2010), the self employed market turning into using IT and internet is growing by 8.7% per year since 2009 and more than 75% of those who use the internet for advertising, select business directories and websites directly related to their trade. Also 11.9% of the self employed tradesmen have a website and a further 13.5% are in the process of getting one in the next 2 to 3 years. This combined with the fact that in small to medium sized businesses 92.2% already use a PC and of these 21.8% run some sort of an online advertising campaign an increase of 2.6% compared to 2009.
You wonder why I have quoted these numbers here, well simple. It is easy to setup a website, many even do web designs from home, for a fraction of the cost that you can get from an established company and even more, a lot of the websites, offering rentals, home services, electricians, plumbers, brick layers, doctors and lawyers have all stopped paying into the system and just getting enough work through the internet or local media, making ends meet and not declaring a cent.
If you now work out the numbers in the previous paragraph you will probably get my point. While an average salary is 1000 euro and while many people are just about getting by on 1000 euro, it is mad to think that you have to pay a minimum of around 300 euro to social security which is regardless of if you make a cent or not, unlike UK where you pay 11% of what you earn.
The only way I see this work, is if the Spanish authorities make huge changes to encourage and provide incentives for employers to keep employees, by reducing the social security quotas and equally even removing them for 1 or even 2 years for all new employees. The maths is simple, I won’t employ unless there is a decent incentive, what would the government prefer, 2 more people unemployed and collecting unemployment money, or 2 more people employed with spending power and the government not having to pay them unemployment but accepting a small loss in return of not taking in anything from the employer.
The same goes for the tax rates. If the tax rates become more moderate, the electricians, plumbers and the hundreds of self employed people out there might find it easier charging clients and paying something more into the system, rather than not paying anything at all and taking it all black.
As mentioned in one of their blogs earlier this year, the next decade will see a rise in self employment which is good and will hopefully create a better and more caring work force, however as Just Aldrige mentioned in one of his post on Eye On Spain, the current trend is that the self employed economy is working black as the system is not apt. The Spanish government will have to make some serious changes to help equally the self employed and small companies who are already in the system and have been contributing to the system and not just the ones who are unemployed. Social Security rates have to be dropped drastically, employment terms and conditions have to become much more attractive for employers and tax incentives have got to be setup for all businesses.
Only then, will the black work force in the market will consider turning into working legally, until then the current system will just fuel an already big black market.

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