Low-wage workers the new Spanish underclass

They bear brunt of pay cuts and must fight for stable jobs for life
The Straits Times, 23 Apr 2014

MADRID - Ms Carmen Collado has laundered hospital linen in Madrid for 11 years. Now, almost half her colleagues have been fired and the 61-year-old grandmother is cleaning the same bedsheets, nurses' scrubs and towels as before - for half the pay.

Ms Collado is still working in a country where more than one in four out of 22.7 million people in the workforce have no job. But her job does her, and Spain, few favours in the long term.

"I've had to turn the heating off this winter. I can't afford to go out with friends, and I'm ashamed to say I have turned to my own mother, who is 91, to help pay for gasoline and car insurance," says Ms Collado.

New laws giving companies more flexibility to cut salaries and change contract terms for employees have helped Spain pull itself back from the brink of default two years ago, restarting export growth by letting companies push down prices.

But the shift in labour rules - promoted by the European Union (EU) as part of economic changes in the euro zone's more indebted nations - has also transformed Spanish society, with long-term consequences that could undermine the recovery.

Workers on low-wage, short-term contracts have borne the brunt of the salary reductions, creating a new underclass of Spaniards who are likely to struggle for the rest of their lives to find stable employment.

According to the International Monetary Fund, wage inequality rose faster in Spain than in any other EU country from 2007 to 2012, a divide that has escalated social tensions in a country that had only recently healed the wounds of a 36-year dictatorship that ended in 1975.

A recent poll indicated support for Spain's two leading parties would fall sharply at the upcoming European elections, often considered a protest vote, in favour of much smaller groups, due largely to their handling of the economic crisis.

As voter confidence in the main parties dwindles, the conservatives could lose their absolute parliamentary majority in next year's national election, making it harder to pass vital reforms through a divided legislature.

Despite clear signs of recovery, with output expected to grow around 1 per cent this year after having shrunk around 7 per cent since the crisis began, Spain's path to long-term prosperity is likely to be steep, economists say.

Though exports have swelled to one-third of Spain's overall output, up from 20 per cent five years ago, the country's economic health is heavily reliant on household spending, which has shrunk in the same period.

That means Spain will struggle to follow in the footsteps of Germany, whose labour-market reforms of the 1990s transformed it into an economic powerhouse fuelled by higher-end exports rather than domestic consumption.

Economists also question whether the cheaper, basic goods that have boosted Spain's export sector can in the long term compete with rival products in even lower-cost countries such as Turkey or Morocco.

"The way out for Spain is going to be painful and, overall in the short run, Spain is going to be a poorer country," says Professor Santiago Carbo Valverde, an economist at Bangor University in Wales.

Household spending, a major pillar for a service-oriented economy like Spain, has shrunk by more than 11 per cent since the burst of the property bubble six years ago.

While the speed of the contraction is easing, much lower wages mean a return to sustainable growth could take years.

With around six million people without a job, Spaniards are jumping at any chance of employment.

Jobs that were previously shunned are now hot property.

Mr Daniel Gismero, a 34-year-old road sweeper in Madrid, is part of a union that successfully fought to avoid a 40 per cent pay cut at the private company that is contracted by the city government to clean the Spanish capital.

Mr Gismero takes home €1,100 (S$1,900) a month and has agreed to a pay freeze and a reduced salary for six weeks of the year until 2017 to avoid more damaging pay cuts.

"Before, nobody wanted my job," he said.

"I feel like one of the privileged ones now."

REUTERS