Coronavirus Crisis pandemic is already unleashing a new economic crisis when the wounds of the previous one have not yet been healed, and threatens to mark for life an important part of the population whose future employment and economic capacity have already been highly conditioned by the great recession
Between 1980 and 2008, Spain only registered one year of economic contraction. It was in 1993, with a fall in the Gross Domestic Product (GDP) of 1%, and as a consequence of a context of international crisis that was delayed due to the impulse of the Olympic Games in Barcelona and the Universal Exposition in Seville.
Instead, from 2009 to 2019, the country suffered four years of negative growth. And in 2020, the crisis unleashed by the coronavirus pandemic threatens to provoke the biggest recession since the post-war period. Some estimates point to figures of up to 10%, in addition to an extraordinary rise in unemployment and a very large deficit. It will be, in short, a new and hard blow for an important part of the population whose access to the labor market and economic capacity has already been marked by the great recession and who now, with many injuries still to be resolved, must face a new context very complicated. The ‘we will never live like our parents’ generation.
It is almost certain that this generation of young people will not have the level of income in real terms, the economic capacity, that their parents achieved,” says José García-Montalvo, Jaume I Prize for Economics 2019. “There are several studies that show that when a young man enters the market in economic crisis, his working life is going to be much worse. Lower, temporary contracts with longer periods of unemployment. So those who accessed the market during the crisis will now take another hit and have a double negative impact. Young people, and when I say young people I am also talking about people of 35, 36 or 37 years old, they are going to have worse jobs and, in addition, more debt that will have to be paid with taxes in the future, “he explains.
Many young people are going to live worse than their parents and the vast majority are not going to improve their standard of living as they have, “Carlos Martín, director of the CCOO’s economic cabinet, has a more decisive impact. And they will, he says, for four main reasons: «A low level of taxes that transfers debt to them that they will have to pay in the future; a housing market controlled by the interests of the rentiers; a scarce and precarious business fabric; and a labor regulation that encourages temporary employment and condemns them to have unstable lives for many years. ”
Although from different perspectives, García-Montalvo and Martín agree that the situation of the labor market and debt will largely determine the future. And the data supports these claims. The long boom period reduced the liability from 65% of GDP reached in 1996 to 35% in 2007, thanks to the growth of the economy itself but also to the three years in which the country was able to achieve a surplus. At that time, the debt per inhabitant was just over 8,000 euros.
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In 2008, this trend was completely altered and successive governments of different colors have shown serious problems in meeting their fiscal commitments. The last example, the 2019 budget closure data that was released last week: the Executive of Pedro Sánchez was not only unable to contain the deviation and meet his goals, but also caused an increase that is the worst possible way to deal with the sharp increase in spending that the fight against Covid-19 is already demanding. Goldman Sachs or Bank of America predict that the deviation will return this year to the worst levels of the economic crisis, exceeding 100 billion and bringing public debt above 110% of GDP. And that will have to be paid. For now, each Spanish owes a little more than 25,000 euros.
The labor market also set negative records in the financial crisis, although this is a problem that previous generations also had to face. During the aforementioned contraction of the 1990s, for example, the rate also reached levels of 24%. But the difference on this point is that the recovery from the great recession was based, to a large extent, on the wage devaluation, and that has not yet been corrected and, most likely, will not be possible in the coming years.
The coronavirus threatens to increase the number of unemployed by 900,000 people, according to CEOE, while Bankinter predicts that the rate will go from 13.8% to 16.1% at the end of 2019. «Depressions in Spain are more severe and affect much to the labor market. There is a problem of rigidity in the market, with many features of Franco’s interventionism that the economy has not yet gotten rid of, that it has inherited.
And this government wants to make it even more rigid and it is going to create more problems. You cannot kick anyone out, as whole companies will be kicked out. Young people with a little talent, but who do not have big handles, are going to have a regular time “, warns Gabriel Tortella, doctor in Economics and Law, King Juan Carlos Prize in Economics, who adds to the debate that” Spanish Universities, especially in Economics, they don’t measure up »and the great outflow of young talent that has been and will be produced in the coming years.
In the concern and possible problems of this generation (or generations) there are, without a doubt, pensions. This is evidenced by various works and surveys, and although the belief that there will be no public benefits in the future seems quite wrong, what does seem inevitable is that they will be considerably less generous.
“In 2011, a reform that limits pensions was already introduced, although no one seems to remember, and more measures will be needed soon. In 20 years I believe that a contributory system will continue to exist but in which the pension will have to decrease with respect to the salary. And there will be a greater difference between the maximum pension and the maximum contribution base, the difference between the minimum and maximum pensions may be reduced, “explains Enrique Devesa, professor at the University of Valencia and one of the greatest connoisseurs of the Social Security system.
For now, however, pensions will continue to increase in value with the CPI, maintaining their purchasing power and, of course, guaranteed by the Government. This, together with the aforementioned instability and labor difficulties, causes “an intergenerational inequality that has not dissipated and that will increase even more in the coming years,” recalls García-Montalvo.
The comparison between living standards, developed by this doctor in Economics from Harvard, is “very Anglo-Saxon” and “here in Europe there are other factors such as education or the ability to travel, more visions to test whether a person has been able to achieve more than his father”. And in that it does seem very likely that, in many cases, the generation will never live as our parents have gone further than their parents.
But at the same time, García-Montalvo leaves one last reflection that is linked to economic capacity but also to that personal fulfillment: «If the average age of emancipation has been 29, 30, 31 years long, now we will see worse figures. It is bad for a young person to be at home at the age of 29 or 30, but given the labor and housing markets, emancipation from now on will be even later.