Spanish Labor Market Dynamics: Economic Cycles and Unemployment Trends (1960–2008)

1960–1976: The Economic Boom and Capital Deepening

GDP grew at very high rates, marking a phase of expansion due to capital deepening. Employment grew modestly. Activity rates were low and rose slowly due to emigration. The wealth capacity of the European Union (EU) was higher than that of Spain and Valencia. The low unemployment rate represented a false balance, characterized by reduced job creation.

1976–1985: Crisis, Stagflation, and Institutional Shifts

This period saw low rates of GDP growth. Employment grew modestly, but the labor force experienced a moderate breakthrough. The activity rate reached 49% in Spain and 50% in the Valencian Community (PV). The unemployment rate soared to 20.3%, hitting Valencia before the national average.

Factors Explaining the Rise in Unemployment:

1. Massive Job Destruction:

• Increased costs for companies due to oil price increases.
• Increased labor costs.
• Slow demand growth.
• Industrial restructuring to cope with the loss of international competitiveness.
• Overlap of economic and political crises in Spain.

2. Increasing Workforce:

• The return of migrants.
• The growing population of working age (the '60s baby boom).
• Incorporation of women into the labor market.

1985–1990: Economic Revival and Persistent Unemployment

High growth rates of GDP and employment. New forms of procurement followed the 1984 labor statute reform. The labor force participation rate increased, and the unemployment rate fell.

Why Did High Unemployment Persist?

The persistence was due to structural factors, despite growth:

• Increased population (legal working age, improved expectations).
• Continued incorporation of women into the market.
• Downward rigidity of wages and high bargaining power of workers.
• High firing costs.
• Generous unemployment benefits, leading to lower job search intensity.
• Low suitability of the unemployed for available jobs.

1990–1994: Recession Leading to Crisis

GDP grew, but at a slower pace, leading to significant job destruction. The labor force (PA) remained high (similar to the previous boom period). The activity rate (TA) increased slightly, but the unemployment rate (TP) remained extremely high.

1994–2007: Massive Job Creation and Economic Outcrop

Strong GDP growth and significant job creation, partly due to the outcrop economy (informal/underground economy). There was an increase in jobs, but a loss of qualified workers due to productivity demands. The labor force participation rate (BP) increased. Employment decreased in sectors with high productivity growth (TPY) and high labor intensity (MO), such as construction and tourism.

2008–Present: Massive Employment Destruction

Massive destruction of employment. Unemployment in the Valencian Community (CV) reached extreme levels (E = 21.3% and 20.1%). The crisis originated from the domestic financial collapse and the disorderly growth of the Spanish economy.