Forget US Unemployment--Spain Is Now More Than 20%

US unemployment may be close to 10% and the President’s midterm budget review may say that the jobless rate will be above 9% until 2012. Many economists believe the figures are not sustainable if the US is continue its economic expansion. The number of people out of work has pushed down GDP growth and that may remain an issue in the current quarter and until the end of the year.

Congress has decided to pass a $33 billion program to pay long-term unemployment benefits to a two millions Americans–a number that grows each day.

But American unemployment pales in relationship to Spain where joblessness has just moved above 20%. In the second quarter of the year, the number hit 20.09%, the highest level since 1997. The total number of people with jobs in Spain improved–barely.

Spain, like many other nations in the EU, has begun to implement austerity budget cuts and a slew of higher taxes. Those measures may be coming at the wrong time. A withdrawal of government stimulus may cause further slowing in the economy and that is likely to drive up the number of people out of work.

Spain will also increase taxes, which will likely be another drain on economic activity. Companies which face higher taxes are less likely to hire and more likely to fire. People paying higher taxes are less likely to be aggressive consumers

The Spain employment problem is a microcosm of problems throughout Europe and the US. And, the problem is hardly new or unexamined. Stimulus spending appears to be vital to GDP growth, at least in the short-term. The nations that would like to spend more on stimulus have crushing budget deficits and national debts that make investors more likely to give them capital only at high interest rates which help increase deficits.

It might be argued that 9% unemployment in the US is “manageable” if the economy is growing and corporate earnings are rising. Healthy businesses do eventually hire new workers. Spain is another matter. The economy and corporate profits can never improve much if one out of five are out of work.

Douglas A. McIntyre