Chapter 11: Unemployment and profitability: the case of Spain
11. Unemployment and proﬁtability: the case of Spain Jesus Felipe* ‘The proﬁts of today are the investments of tomorrow and the investments of tomorrow make the employment of the day after tomorrow’ (Helmut Schmidt, quoted in Malinvaud 1980: 4). INTRODUCTION Unemployment is Spain’s foremost economic and social problem. In 1998 there was a reserve army of over 3 million unemployed workers, equivalent to 18.81 percent of the active population. This is close to twice the European rate, and almost four times the US rate. Up to the late 1970s, Spain’s unemployment rate was not signiﬁcantly diﬀerent from that in other European countries and the United States. But beginning in the early 1980s the rate began soaring at a pace much faster than in other countries, with the result that the average unemployment rate for 1988–92 was more than six times that of 1974–79 (Bean 1994: Table 1). By 1994 it had reached a record 24.16 percent (3.7 million workers). These ﬁgures place Spain well on top in the unemployment ranking among the OECD economies. This chapter explores empirically why unemployment in Spain is so high and persistent. Drawing on arguments from the classical literature, a key variable is introduced in the analysis of unemployment, namely the proﬁtability on invested capital. It seems paradoxical that while this variable is often quoted by businessmen, management specialists or laymen, it has traditionally been neglected by economists (Malinvaud 1982: 11).1 In a market economy, ﬁrms struggle...
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