Young People Still Crushed by Housing Bust, Banking & Economic Crisis: Bank of Spain
The contrast with retirees could not be starker.
By Nick Corbishley, for WOLF STREET:
Over the past five years, Spain’s economy has grown at a faster rate than almost any other in the Eurozone. But not everyone has benefited. And a new report by the Bank of Spain confirms, no one has paid as heavy a price as the generation that came of age in the years immediately before and after the collapse of Spain’s insane housing bubble and the banking crisis that followed.
The Bank of Spain’s triennial Family Financial Survey, based on data through 2017, shows that heads of households under the age of 35 saw their median gross income (income before taxes and contributions) plunge by 18% from 2010 to 2017 — more than any other age group. Median gross income of all age groups combined in 2017 was still below their 2010 levels, although three age groups — 35 to 44-year-olds, 65 to 74-year-olds and 75 to 84-year-olds — did see their incomes rise, at least on a nominal (not inflation-adjusted) basis.
When it comes to personal wealth, the data is even more dismal for the under-35s. In 2010 their median net wealth after debts stood at €71,600. But by 2017 it had collapsed 92% to €5,300. The main reason is that since the crisis, almost all under-35s have been financially excluded from the property market, largely due to their shrinking incomes levels. Other age groups have also seen their net wealth diminish, albeit less, since 2010, mainly as a result of the fall in house prices, which account for the lion’s share of household wealth in Spain.
The Family Financial Survey, published every three years, is meant to provide a snapshot of the financial health of Spanish households. When it comes to the youngest households, the picture is not pretty. Between 2010 and 2017, their median gross income fell from €27,700 to €22,800.
The contrast with retirees could not be starker: their median annual income jumped from €20,000 in 2010 to €25,500 in 2016. This increase is partly due to rising pension benefits, which, unlike most salaries, have more or less kept up with inflation over the last ten years. It’s also a result of an influx of new pensioners onto the pension rolls who have earned more money in their lifetime and are therefore eligible for a higher pension, which bumps up the median income for pensioners as a whole.
By contrast, young households have to contend with a job market that is rigged against them. While many young workers have contracts that are measured in months, weeks or even days, more established workers have open-ended contracts that are both exceedingly rigid and extravagantly generous when it comes to layoffs.
The system dates back to the days of the Franco dictatorship when workers received as much as 60 days’ severance pay for each year worked, making it almost impossible for companies to lay off workers without putting themselves out of business. Even today, after a series of labor market reforms, many Spanish workers receive more than 20 days’ severance pay per year worked.
To give companies some degree of hiring flexibility, without completely alienating unions and workers, Spain’s government liberalized the use of temporary contracts in the 1980’s. And companies fell in love with them. Lasting a maximum of two years (at which point the employee has to move on or be given a permanent post), the contracts offer meager protection, miserly layoff payouts, and usually dismal pay. These problems are further compounded by the outsized role of the tourism sector, which is notorious for creating casual, low-paid jobs.
The inevitable result has been a two-track labor market that encourages employers to create precarious, short-term jobs and discourages them from hiring young people — or anyone, for that matter — as permanent employees. Temporary contracts abound, by now accounting for over a quarter of all jobs in Spain, the highest rate in the EU. According to Eurostat data for the second quarter of 2019, the ratio of temporary workers to total employees in Spain was 26.8%, practically double the EU-28 average (13.6%). For under-30s, the ratio surges to 55%, 10 percentage points higher than in 2010.
Given the fragility of their financial situation, it’s not surprising that more and more young workers are choosing to stay at home. In 2018, a staggering 81% of under-30-year-olds were still living with their parents, the highest proportion since Spain’s Youth Council began compiling data in the 1990s. The proportion fell steadily in the years leading up to the crisis, reaching a record low in 2008. But it has done nothing but rise since then.
The Bank of Spain’s study concludes by calling for measures to help the country’s lost generation access the rental housing market as well as address the bipolarity of the labor market. But that’s probably easier said that done. After all, the chronic dysfunctions that afflict Spain’s labor market, making it one of the worst labor markets in Europe, date back decades. And their roots go very deep. By Nick Corbishley, for WOLF STREET.
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