Spanish jobless rate drops to lowest in nearly seven years

Recovery largely driven by services and temporary hires
By Sarah White and Blanca Rodríguez
||Last Updated: 10/27/2016

MADRID (Reuters) — A record summer for tourism helped push Spanish unemployment down to its lowest in nearly seven years, though the still hefty 18.9 per cent level puts Spain's incoming government under pressure to extend the recovery with further reforms.

Hiring in the services sector in the third quarter pulled down the jobless rate, data from the National Statistics Institute (INE) showed on Thursday, exceeding economists' expectations.

Cementing the turnaround will be a major priority for politicians expected to finally form a government after a 10-month delay on Saturday, following a deep recession that caused mass layoffs.

The number of unemployed still stands at 4.3 million, and the jobless rate is the second highest in Europe after Greece.

Labour policy is expected to be the source of big clashes between right and left-wing forces, who will struggle to pass laws in a fragmented parliament.

Mariano Rajoy, leader of the conservative People's Party (PP), is set to return to power this weekend, but his party no longer enjoys an absolute majority.

He urged the opposition on Thursday not to try to reverse reforms pushed through when he was last in power, as the Socialist party and anti-austerity Podemos ("We Can") have said they will.

A job market overhaul from 2012 which reduced the cost of hiring and firing is credited by economists with helping the labor turnaround, but is unpopular with many unions and workers.

"Undoing the political and economic reforms passed in the last term will not be good for Spain ... that does not mean sensible changes cannot be made," Rajoy told lawmakers.


Politicians agree Spain's employers are still overly reliant on short-term hires. Some want a one-size-fits all contract system while others want to reinforce labor inspections to crack down on fraud.

The jobs spurt in the third quarter was almost entirely fueled by temporary hires, chiming with the seasonal recruitment usually driven by restaurants, hotels and resorts during the summer months.

The percentage of temporary staff hit almost 27 per cent, its highest level since the end of 2008, INE said.

That trend could persist in the months ahead, some analysts warned, even as seasonal hiring linked to the tourism boom ends.

"Firms could pursue more cautious investment and employment plans in the face of lingering political mess and a widening spectrum of risks triggered by the fallout of the Brexit vote," IHS Global Insight analyst Raj Badiani said in a note.

Company lobby group CEOE welcome the fall in the unemployment rate in the third quarter, but called on leaders to do more.

The number of unemployed fell by 253,900 people in the third quarter from the previous three months, or by 5.5 per cent, INE said, a slightly slower fall than the one registered in the same period a year ago.

But job creation was stronger quarter-on-quarter than in the same period in 2015, rising 1.24 per cent or by 226,500 in July to September, from the previous three months.

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