Black economy clouds Spain’s recovery

Many of Spain's five million unemployed dream of finding a steady job in the economic recovery vaunted by the government - but a legion of undeclared workers still scrape by cash-in-hand.

Black economy clouds Spain's recovery
Jobless queue outside a job centre in Madrid. Photo: AFP

“Nowadays the phrase 'steady job' means nothing in Spain,” said Paloma Sotillo, 43.

She is one of 1.7 million people in Spain who admit to earning at least part of their pay in the “black economy”, without tax or social security contributions.

Spain's economy returned to growth in 2013 after five years of economic crisis, but its unemployment rate is still the second-highest in the eurozone after Greece.

The rate dipped to 22.37 percent in the second quarter of this year, according to official data published this week.

Job creation? The truth behind the figures

A study by Catalan business school Esade indicated however that one in 10 employees and one in five unemployed people in Spain did work for earnings that they did not declare to the taxman.

Sotillo said she had been unemployed for a year when she found a job in a Madrid toyshop in December 2013. She worked there for a year before stopping in order to look after her sick mother. 

“I had a contract to work 30 hours a week, but I worked 35 and they paid me the difference cash-in-hand,” she said — a salary of 700 euros plus an undeclared supplement of 120 euros.

'Corruption encourages tax-dodging'

The tax collectors' union Gestha says the vast black economy has for decades undermined Spain, the eurozone's fourth-biggest economy.

It estimates the black economy equals about a quarter of Spain's gross domestic product — or roughly a quarter of a trillion euros.

For Gestha, that makes Spain one of the fiscal bad boys of Europe, along with Greece, Italy, Portugal and Poland.

Economists say the cash-in-hand habit is strongest in agriculture, building, domestic work, trade and tourism.

“The high level of unemployment has increased it,” said Gestha's president, Carlos Cruzado.

He said Spain suffers from a culture of tax avoidance, fuelled by indignation over constant reports of political corruption, and also lacks enough tax inspectors.

During the boom decade before Spain's crisis broke out, companies subcontracted a lot of their work to workers whom they paid in cash in order to keep up with demand, said Princeton University sociologist Alejandro Portes.

Then in the crisis, this gave way to “an informal economy of survival” of technically unemployed people living hand-to-mouth from casual jobs, he said.

Cruzado complained that the black economy persists partly due to a belief that stopping people earning that way in a crisis could have explosive consequences.

It is hard to do away with a system that supports many people who have exhausted all their welfare subsidies in the crisis.

“There is a theory in Spain that, with five million people unemployed, there would be a revolt on the street if it were not for the underground economy,” Cruzado said.

Full-time jobs wanted

Prime Minister Mariano Rajoy says Spain created 400,000 jobs last year and will add a further 600,000 in 2015.

The unemployment rate declined by 1.4 percentage points in the second quarter, according to the National Statistics Institute.

But experts, including specialists from the OECD grouping of developed countries, warn that in Spain, as in countries such as Greece and Italy, many workers are longing for full-time work.

Angel Valls of Esade estimated that 83 percent of contracts signed in the second quarter in Spain were temporary ones, but warns that Spaniards demand more from their developed economy.

“The quality of our jobs is very bad,” he said.

“Part-time work is becoming more common, but most people working part-time in Spain don't want to work as a cook in a cafe.”

By Laure Fillon

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Spain’s middle-class youngsters the most likely to end up poor across all EU

Spain leads the ranking of EU countries with the highest risk of young people ending up in poverty as adults, despite coming from families without economic difficulties.

Spain is the fourth EU country with the highest inherited poverty
Spain is EU country with most middle-class young people who end up poor. Photo: Jaime ALEKOS / AFP

Spain is also the fourth EU country with the highest rate of inherited poverty risk, according to Eurostat, the EU Statistical Office.

Data on intergenerational poverty indicates that there is a correlation between the financial situation of the household you grew up in and the risk of being poor when you reach adulthood and in Spain, there is a strong link. 

The latest statistics available from 2019 show that the at-risk-of-poverty rate for the EU was 23 percent among adults aged 25 to 59 who grew up in a poor financial situation at home when they were 14 years old. This is 9.6 percentage points more than those who come from families without financial problems (13.4 percent). 

READ ALSO: Spain’s inflation soars to 29-year high

How the situation in Spain compares with the EU

Spain has become the EU country with the highest risk of poverty among adults who grew up in families with a good financial situation  – 16.6 percent.

This was followed by Latvia with 16 percent and Italy with 15.9 percent.

That statistics also show the countries where it is less likely to be poor after growing up in households without economic difficulties. These include the Czech Republic (5.9 percent), Slovakia (7.9 percent) and Finland (8.5 percent).

The overall poverty rate in the EU decreased by 0.1 percentage points between 2011 (13.5 percent) and 2019 (13.4 percent), but the largest increases were seen in Denmark (1.9 points more), Portugal (1.8 points), the Netherlands (1.7 points) and Spain (1.2 points).  

On the other hand, the biggest decreases in the poverty rate were seen in Croatia (-4 percent), Lithuania (-3.6 percent), Slovakia (-3.5 percent) and Ireland (-3.2 percent).

READ ALSO: Spain’s government feels heat as economic recovery lags

Inherited poverty

The stats revealed that Spain was also the fourth country with the highest rate of inherited poverty risk (30 percent), only behind Bulgaria (40.1 percent), Romania (32.7 percent) and Italy (30.7 percent).

This means that children of poor parents in Spain are also likely to be poor in adulthood. 

The countries with the lowest rate of inherited poverty risk were the Czech Republic (10.2 percent), Denmark (10.3 percent) and Finland (10.5 percent).

The average risk-of-poverty rate for the EU increased by 2.5 percentage points between 2011 (20.5 percent) and 2019 (23 percent), with the largest increases seen in Bulgaria (6 points more), Slovakia and Romania (4.3 points), Italy (4.2 points) and Spain (4.1 points).

The biggest drops were seen in Latvia (-8.5 points), Estonia (-8.0 points) and Croatia (-2.3 points). 

The largest gaps in people at risk of poverty when they reach adulthood were in Bulgaria (27.6 percentage points more among those who belong to families with a poor economic situation as teenagers compared to those who grew up in wealthy households), Romania (17.1), Italy (14.8), Greece (13.5) and Spain (13.4).