A point on Spanish economic adjustment

by on September 30, 2013 at 2:08 am in Current Affairs, Economics | Permalink

Yesterday Edward Hugh wrote an intriguing passage:

Despite the fact that Spain’s unemployment rate is currently around 27% immigrants continue to arrive in the country (often risking their lives to do so), a fact which puzzled the Financial Times demography correspondent Norma Cohen when we spoke about this article. “Why on earth,” she asked me “would people want to come to Spain with such a high rate of unemployment?” Because salaries are better than in their home countries would be the simple answer, and because they are willing to do work which many Spaniards are reluctant to do, at least at the salaries which are on offer. So economic migrants continue to arrive, an estimated 300,000 of them last year, even though the net migrant flow reversed since more left (both native Spaniards and immigrants) with Spain’s population falling for the first time in modern history as a result.

One interpretation of this finding (not one that Hugh necessarily endorses) is thus.  Given the quality of its institutions, Spain is due for a lower wage structure, with lower quality jobs, as they might be perceived by the workers themselves.  To some extent, Spain will achieve this new equilibrium by population adjustment and exchange.  Spanish engineers will move to southern Germany and Ecuadorans will move to Spain.

Hugh’s post is mostly about Latvia, here is another interesting bit:

…three IMF economists (hereafter BGG) effectively signed off on their study of “what just happened on Latvia” and, they hoped, drew to a close a debate which has been going on now for some 6 years. In fact, far from closing the debate, what they may have done is effectively extend it into new terrain, since these apparently harmlesss words – “the recovery from the slump is largely complete” – have far reaching implications, as does the methodology they use for reaching it. These implications reach well beyond Latvia, and even far beyond the Baltics and the CEE in general, despite the conclusion that everyone seems to be reaching that Latvia was just a “one off”. Possibly without intending to do so, they have drawn onto the clinical investigation table issues which have been mounting  up in the theoretical lumber rooms of neoclassical growth theory for some time now, issues which begin to assume a paramount practical importance in the context of our rapidly ageing societies. What, for example, do we understand by the term “convergence” these days? And if “steady state” growth can no longer be understood as implying a constant growth rate (trend growth in developed economies is now systematically falling) should we be considering the possibility that headline GDP growth will at some point turn negative, even if GDP per capita may continue to rise, due to the fact that populations are steadily starting to shrink. And if the answer to the former question is “yes”, then what are the implications of this for the financial system, for the system of saving and borrowing, and for the sustainability of legacy debt? Not little questions these, but one which will need to find answers and responses in countries like Latvia over the next couple of decades.

1 Daniel Cañueto September 30, 2013 at 3:39 am

Don’t ignore language (for latinos), short distances and less frontiers to cross (for magrebies) and reunion and support from family or neighbours that arrived during the housing bubble.

Homo economicus is a useful simplification, but a simplification

2 Steve Sailer September 30, 2013 at 4:19 am

But, but, but I’ve been told over and over that massive immigration, like Spain experimented with in the last decade, is Good for the Economy. So, I’m just not going to believe that Spain has a 27% unemployment rate.

It can’t be!

3 Axa September 30, 2013 at 5:34 am

Relax, it’s about Spain, not California.

If you look at some numbers Spain has a really curious inequality problem. Tyler may be right saying engineers leave to Germany and people from Ecuador arrives to change diapers of very old people.

Look at graph 1.2 on page 7 from the OECD report on education for Spain: http://www.mecd.gob.es/dctm/inee/internacional/panoramadelaeducacion2013informe-espanol.pdf?documentId=0901e72b816996b6

What’s going on? In the last decades Spain has done a great effort on making sure young people finishes tertiary education (university). However, secondary education (high school and technical) education is at the same level as Mexico. That means 46% of Spain population between 25-64 years old quit school when they were 14 years old. They have the education that lands them a McJob for life. Even to be a competent plumber, electrician, mechanic or CNC operator you need a few more years of technical schooling.

They had the Olympics back in 92, they joined the EU, some politicians sold them the dream of belonging to the “first world”, easy credit made that dream possible…….sadly wishful thinking is not enough. Spain is closer to Brazil and Mexico than the OECD average.

Steve, in California 11% of the population competes with the uneducated “Mexicans”, in Spain that percentage is 46%. So, another generation of parents in Spain has to endure shitty jobs while sending the kids to school hoping a better future. Problem is that people in Spain believe they have already accomplished the education task and are really angry about not getting results.

4 Yancey Ward September 30, 2013 at 10:52 am

In other words, California is about 2 generations from being Spain?

5 bob October 1, 2013 at 3:26 pm

The problem is most Spanish universities are pretty crappy and don’t prepare you to do any useful work. Those that have those skills in the first place have no incentives for staying home: If you are any good and have some money, go to a foreign university, get a job there, and only come back for vacation, where you’ll see that the same job in Spain is much harder to get and pays less than half of what you do in a first world country.

6 Steve Sailer September 30, 2013 at 4:25 am

“To some extent, Spain will achieve this new equilibrium by population adjustment and exchange.”

But what if Spaniards like living in Spain?

Perhaps this frictionless globalized economy of exile, in which Ecuadoreans go into exile in Spain and Spaniards go into exile in Germany, isn’t wholly ideal for human happiness?

7 Nathan Goldblum September 30, 2013 at 4:41 am

If they like Spain, they should have taken care of it.

8 Cliff September 30, 2013 at 8:33 am

By not letting in all those damn immigrants?

9 Nathan Goldblum September 30, 2013 at 9:16 am

Part of the problem, but not really essential. The trouble with Spain derives mostly from the integration into the Union and poor institutional quality (a 2012 CPI of 65, equal to … Botswana. Fraser Inst. rating of institutional quality at 6.5).
To paraphrase Shakespeare, the fault is not in their stars, but in themselves. And now, they must suffer for their transgressions. Blaming it on the immigrants fail to address the problem.

10 Bachelor September 30, 2013 at 11:05 am

Oh, I see. There can only be one problem in a country.
If we say massimmigration has failed in Spain, we cant at the same time agree with the fact that Spain has rather poor institutions compared with other western countries?

In a more complex world, it might be possibel to have two problem at the same time. Maybe even a case, where one problem makes the other one even worse?

BTW. The question is, what is a smart immigration-strategy, given the poor institutions?
It is not like Spain have chosen bad institutions because they think it is fun. Its just something they have, and it is difficult to change. Immigration and high unemployment is hardly the way forward.

11 Steve Sailer September 30, 2013 at 2:42 pm

How replacing Spaniards with Ecuadoreans and Maghrebians fleeing the even worse institutions in their own countries will improve Spain’s institutions is a little vague

12 So Much For Subtlety September 30, 2013 at 8:03 pm

Even worse, we know how replacing populations who create viable institutions with populations that don’t works as well. Look at California. Or Detroit.

The threat is not only that Moroccans are not going to make Spain any more functional, but that the Spanish in Germany will screw up that country too. Once they have enough votes to tip the balance their way.

13 Steve Sailer September 30, 2013 at 4:49 am

From Bloomberg BusinessWeek in 2007:

“Spain: Immigrants Welcome
“May 20, 2007

“Imagine what would happen if a prosperous Western nation threw open its borders, allowing immigrants to flood in virtually unchecked. Soaring unemployment, overstretched social services, rising crime, even rioting in the streets? Not in Spain.

“Over the past decade, the traditionally homogeneous country has become a sort of open-door laboratory on immigration.”

http://www.businessweek.com/stories/2007-05-20/spain-immigrants-welcome

Massive immigration hasn’t failed in Spain, it just hasn’t been tried hard enough!

14 affenkopf September 30, 2013 at 7:05 am

Spain is traditionally homogeneous? Tell that to Basques, Catalonians, Galicians,…

15 Scharlach September 30, 2013 at 9:27 pm

My mother is Castilian. She doesn’t identify with the Basques. But put her in a room with Basques and Amerinds (or Basques and Muslim North Africans) and both she and the Basques will isolate themselves in a corner quite quickly.

Or, the other way to complicate your argument:

There’s enough diversity and its concomitant strife in Spain already! Why do we need to make it even worse by bringing in more immigrants?

16 Floccina October 1, 2013 at 12:29 pm

It hasn’t necessarily failed for the immigrants. IMHO pro-immigration economists are mostly taking a humanitarian position. They may bring up data that say it will be good for the existing populations of the developed countries but I think in their minds even if it is a net negative for the people already there they would support immigration.

17 Steve Sailer October 1, 2013 at 9:09 pm

Pre-2008, economists would always bring up data about how massive immigration is good for Americans. Now, they mostly say immigration is good for foreigners, so tough it out Americans, why do you think you have some sort of special right to America, and by the way, I am getting my taxpayer paycheck and federal grants, on time, right?

18 The Bachelor September 30, 2013 at 5:19 am

Spain is a funny (sad) example when it comes to immigration.

However all I can read from the above, is that spaniards are lazy;

” (immigrants) they are willing to do work which many Spaniards are reluctant to do”

It is a racist and undocumented claim.
BTW, if there were less immigration, what would happen to wages in these jobs?

One would think Tyler and Alex had something more to say, given the failure of the massimmigration i Spain.
Why haven’t the immigration created all these magic jobs for the spaniards as claimed again and again when you discuss immigration. It is probably a lot of fun being uemployed 24 years old in spain with no future, but hey, now they have maroccans restaurants. It is almost a win win, right?

Tha failure is clear to everybody, but instead of talking about that, we can now understand that the free immigration miracle is good for Spain because the purpose is having the population of latinamerica move to spain to enjoy the wealth there, and then the spaniards should move to Germany to enjoy the wealth that have been created there.

An easy question; With this free-immigration strategy in mind, where should americans move?

19 Axa September 30, 2013 at 5:54 am

11% of foreign people people is mass immigration? Right now Switzerland has 37% of foreign born inhabitants, that should be hell. Even the US had 60% of foreign born inhabitants once.

Before blaming the immigrants in Spain, remember the strong and healthy macho culture in Spain. Women must not work and a respectable adult man must be close to mama.

Please stop comparing with the US. The US compared to Spain has a strong educational system.

20 Bachelor September 30, 2013 at 7:33 am

Comparing german/french immigrants in Switzerland with the immigrants coming to Spain is just stupid.

Other than that, you might be right. Here is your case;

Massimmigration into Spain
High uemployement in Spain

No connection between these to facts, instead the economic problem of Spain is due to their macho culture and being evil christians.

What would happend to uemployement rates in Spain if 200.000 people returned back to their country of origin e.g. Morrocco, Mali, Pakistan, Ecaudor.
Would it make it easier for Jose and Miguel (both are 23 years old) to find a job?

21 Reg Hall September 30, 2013 at 3:53 pm

Not quite game, set and match. The majority of immigrants are Italian with Germans in second lace and Portuguese in third.

22 Bachelor October 1, 2013 at 3:32 am

And ?

I’m aware of the the fact that many immigrants comes from other european countries.

It doesn’t really change anything. Spain has many problems, one of them being immigrants without any skills.

How does it help Jose and Miguel, that the majority of immigrants are from Italy?
How does that make the immigration from Morrocco and Ecaudor less of a problem?

The fact is that Spain has high uemployment, many young people with no future, and at the same time a lot of immigrants (also demanding school, healt care, eg.).
Apparrently all these immigrants haven’t created all those jobs, that Tyler and friends always tell us about.

23 jerseycityjoan September 30, 2013 at 7:19 am

That is a really easy question, isn’t it?

Only a small percentage of American adults would qualify on work skills to get a long term visa in other countries.

So while our elites with their substantial assets and/or advanced degrees might have a fair to excellent chance of getting a long term visa anywhere around the world, the rest of us are stuck right here.

Meanwhile, our politicians want to greatly increase legal immigration. One of their reasons is higher legal immigration would reduce illegal immigration. That’s in the Senate bill but somehow it’s never talked about much.

Yeah, right.

24 Doc at the Radar Station September 30, 2013 at 9:27 pm

+1

25 bob October 1, 2013 at 6:14 pm

Spain’s institutions are a disaster, and bad institutions are a problem regardless of immigration.

As as Spaniard, I do not believe that immigration has much to do with the country’s current problems: I’d rather blame the bad schools, the awful workplace dynamics, and one of the worst political classes in the west. Even during the boom, Spain only provided good opportunities for construction workers and entrepreneurs that built housing projects. If I hadn’t left the country, and there was no immigration, maybe I could live there, working as a bartender.

Fix the institutions, and maybe it’ll make sense for qualified Spaniards to stay.

26 bsanchez September 30, 2013 at 5:38 am

Tyler,

“Spanish engineers will move to southern Germany and Ecuadorans will move to Spain.”

Wrong example. The continued immigration attempts are from sub-Saharan Africans only, and the net flow is probably also negative. The Latin American and Maghreb flows have been significantly negative in the past year: Brazil -9.9%, Bolivia -9%, Ecuador -7.4%, Argentina -6%, Perú -5.7%, Colombia -5.4%, Morocco -1.9%.

Funnily enough, increases in British-born population (+2%), French (+1.2%), Germans (+0.9%) and foreign-born Spaniards (+1.6%).

All data from the Instituto Nacional de Estadística, page 3 here: http://www.ine.es/prensa/np788.pdf

27 bsanchez September 30, 2013 at 6:04 am

Even on my speculation about sub-Saharan Africans I am wrong. See this chart based on INE data: http://randomspaniard.blogspot.com/2013/09/flujos-migratorios-de-personas-de.html

28 Axa September 30, 2013 at 6:07 am

If there’s a doubt of how retrograde is Spanish culture, please read this:

The grade from Religion class will be taken in account for education grants:
http://sociedad.elpais.com/sociedad/2013/05/17/actualidad/1368789921_570541.html

29 Da September 30, 2013 at 11:11 am

It is very similar in Germany.

And rightly so: If religion is taught in school, and if the standards are comparable to other classes, then the students performance in these classes is a relevant evidence of their perfomance in general.
The same is true for sports, the arts, music, history and so on.

It may be that European countries feel that education should be broader than just writing, calculating and knowing how to be a good consumer?

30 Kabal September 30, 2013 at 7:51 am

Fortunately, cognitive variation between nations and occupations does not exist–so the hypothetical (or realized?) loss of Spanish engineers and the influx of a grab-bag of Ecuadorians would only be a good thing for Spain, given the benefits of diversity and that the Ecuadorians actually want to be there and the traitorous Spanish engineers do not.

31 Hoover September 30, 2013 at 7:51 am

But… but… they said that education is the key to a nation’s future. They said that national wealth correlates to exam results… to PISA scores… to STEM skills and the three Rs.

And now they’re saying that education will price you out of the market and you’ll need to move to Germany?

This, combined with The Bachelor’s question above “Why haven’t the immigration created all these magic jobs for the spaniards as claimed again and again” makes me wonder if we know anything at all about the effects of immigration and skills.

Professor Cowen, have I got this all backward? I’d be grateful if you could set me straight if there’s something I’m not understanding…

32 JWatts September 30, 2013 at 10:39 am

One interpretation of this finding is thus. Given the quality of its institutions, Spain is due for a lower wage structure, with lower quality jobs, as they might be perceived by the workers themselves. To some extent, Spain will achieve this new equilibrium by population adjustment and exchange. Spanish engineers will move to southern Germany and Ecuadorans will move to Spain.

If that’s reasonably correct, that’s a damning indictment of large scale low-skilled immigration to a developed economy. I’d like to see the argument that if Spain had higher quality institutions, why the results would have been different. I’m not sure I’d buy into it, but I’d like to see it laid out.

33 john jansen September 30, 2013 at 11:22 am

That is interesting stuff but the most intersting factoid was the revelation that the FT has a “demographic correspondent”.

34 Merijn Knibbe September 30, 2013 at 12:48 pm

A somewhat overlooked fact regarding Latvia is that after 2008 it received (and still receives), like the other Baltics but unlike Greece, grants from the European Union which are equal to about 4% of GDP. This does make a difference, especially when it comes to the governmentd deficit. It is not a concidence that a large chunk of total job growth consists of additional government jobs, at the moment. Look here http://rwer.wordpress.com/2012/05/29/factoid-of-the-day-the-baltics-not-a-textbook-example-of-austerity-guest-post/

and here

http://rwer.wordpress.com/2012/06/10/a-voice-from-the-baltics-rainer-kattel-and-ringa-raudla-on-the-question-if-the-baltics-are-an-example-or-not/

As, at the time, none of these countries were a member of the Euro club these transfers were de facto Outright Monetary Stimulus, i.e. the same thing as money printing. The point: this worked (though the grants were to small bij about 100%). That´s what the Eurozone can learn from these countries.

35 John Yard September 30, 2013 at 1:11 pm

So many people have emigrated from Latvia that the survival of the nation
is threatened. This is the opposite of a success story – it is a tragedy.

36 mulp October 1, 2013 at 3:19 am

“Given the quality of its institutions, Spain is due for a lower wage structure, with lower quality jobs, as they might be perceived by the workers themselves. To some extent, Spain will achieve this new equilibrium by population adjustment …”

Here is another way to look at it.

If Spanish individuals were consuming 1.0 because their wages were 1.0, but now wages are being forced to 0.8, that means consumption must go to 0.8. For (illegal) immigrants coming from places where wages are 0.5 which means consumption is 0.5, going to Spain and getting screwed in Spain might mean wages at 0.6 and consumption at 0.6, or consuming at 0.5 and sending 0.1 in remittances, with the hope of moving to wages of 0.7 and then 0.8.

On the other hand, moving from Spain to Germany and getting screwed out of the 2,0 wage and only getting 1.0 means you can consume 1.0 with the hope of getting to 1.5 and consuming 1.5.

Moving from one place to another can be very expensive, like a big capital investment, so the risk is high, and might take years to make the move net positive, and requires in many case others to invest in your move. After a certain point, say middle age, the costs of a move are greater than the reward because it takes too long to recover the investment, so the only and thus best option is to progressively consume less into poverty. Lower wages simply mean you become poorer – lower wages never make you better off, so economist argue you should be happy that your life does get a lot worse – economists offer only going into poverty slowly or quickly.

37 Mike October 2, 2013 at 2:45 am

Presumably Spain is just their entry point, not necessarily their ultimate goal?

Also, did the US receive many migrants during the Great Depression?

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