IB Extended Essay Sample – How does policies of a welfare state affect the unemployment in Spain?

It is just the text part extracted from the IB extended essay sample on How does policies of a welfare state affect the unemployment in Spain?

1. Introduction:

Employment is one of the most crucial economic factors that plays a huge role in strengthening the economy. Without stable job opportunities, the workforce of the country suffers financially as well as socially. This causes a chain reaction in terms of low consumer spending, diminishing demand, and the inability of the general population to arrange or pay for basic amenities. This also causes poverty to increase with many people falling below the average or required income level.

Economic theories and past researches have already provided substantial evidence associated with the impact of unemployment or unstable employment opportunities on any economy. However, this focus intends to focus on a specific country that has an economy which intends to provide economic security to its citizens. Such an economy is termed a welfare state. It is seen that economic integration is maintained with the help of the welfare state. The global economic crisis is not temporary nor is it due to simple financial misalignments. Formulas have been tried, with little efficacy, which, to face crises and reactivate the economy, neglect other models that correct the deficiencies of the existing structures, that distribute the socially necessary work with programs for the most disadvantaged, that invest in health and education, and that they advance towards sustainability in employment in sectors with strong job creation.

Based on the above discussion, it can be deduced that the study focuses on the implications of unemployment for a welfare state.

2. Research Question:

To what extent do policies of a welfare state affect unemployment in Spain?

3. Methodology:

For this investigation, I am attempting to determine the extent to which welfare state policies affect the unemployment of an economy. Well in this study, I will be focusing on the economy of Spain.

As part of my research, I am going to look at previous studies and research papers to see if they can shed light on the existence and pattern of unemployment in Spain in the past and recent years, and how that affects the policies of a welfare state like Spain. Unemployment patterns in Spain will be analyzed using a quantitative approach, which will collect data from secondary sources and produce attractively displayed graphs. The years 1995 through 2020 were used to compile the data. In order to avoid a rise in Spain’s unemployment rate after 2020, data gathering will not begin in 2021. However, my primary goal is to examine the impact of unemployment on Spain’s welfare state programs, not just the impact on Covid-19. Unemployment will rise as a result of Covid-19 preventing many individuals from going to work and even forcing some businesses to close their doors. As a result, it is difficult to estimate the impact of unemployment during this time. Using both qualitative and quantitative methodologies to analyze and evaluate the study objective is confirmed by the foregoing discussion, which includes a review of previous literature. These sources will not only help the researcher to analyze the economic phenomenon but will also help them to infer and predict possible future outcomes. I plan to first provide insight into the unemployment situation in Spain and also shed light on the welfare state policies of Spain.

4. Analysis and Discussion

Unemployment in Welfare State, Spain

One such economy that is following the afore-stated footsteps of a welfare state is Spain. The unemployment in Spain has been following mostly a cyclical trend. The below graph suggests that Spain has seen a decrease in unemployment over the period from 1995 to 2007. While later on, the unemployment increased till 2015 up to the highest level. It rose 8% in 2008 to 26% in 2020. Once again, the labor force participation flourished which continued till the year 2020, until COVID started to increase the unemployment level in Spain.

Figure 1: Unemployment Trend in Spain

Source: World Bank Database (2021)

In the 1990s, the state had to enforce necessary legislation and policies that made it quite a difficult task to terminate an employee, due to the high cost in terms of penalties and benefits that employers had to pay. This was possibly the major cost for high unemployment.

Policies of a Welfare State, Spain

Unemployment in Spain from 1990 to 2020

Contribution / Social Benefits Schemes

Well, in order to fulfill the responsibility of a welfare state for not allowing to increase poverty and help those who are unemployed. The governments in the past had allocated social protection programs that were enforced for the purpose of providing certain social benefits to people who were unemployed. In order to prevent confusion, this research will concentrate on two distinct benefits: the national non-contributory unemployment benefit and the regional minimum income benefit (RMI). In order to help persons who are unemployed, have exhausted their contributing benefits, and are at risk of destitution, these two programs were created. For non-contributory unemployment benefits, claimants typically required to be unemployed, registered as job seekers, and earning less than seventy-five percent of the country’s minimum wage (about €485, or £384, per month) in order to qualify. Regional minimum income benefits (RMI) are targeted for persons who have little or no work history and are also on low incomes. Therefore, this benefit must be considered a subsidy, applicable only when there are no other options for assistance. However, the rising unemployment seems to be a logical explanation for the after-effects of the social benefits policies that had been previously adopted by the government of Spain.

Social security in Spain has always been one of the most difficult problems to solve. It is difficult for claimants to ease into work because labor unions and legislators do not often accept part-time job contracts. With that restriction, Spain’s non-contributory benefits do not offer many incentives to get a job. The withdrawal rate of both the contribution measures is a major problem when it comes to getting benefit applicants back to work. A job that would pay more than what the benefit’s minimum level will usually result in the claimant losing their access to the benefit immediately. According to a British perspective, this makes it difficult for unemployed people to transition from welfare into the workforce.

Minimum Wages

The below depicted graph shows the minimum wage rate in Spain that had increased in the past 5 to 6 years from 21.84 to 31.66:

Figure 3: Minimum Wage Rate (Euros) Trend in Spain

Source: Romero, (2021)

The imposition of minimum wages is one of the corrective measures adopted by the state government in order to tackle the issue of poverty. Well, this policy has very significant economic implications. Firms are not allowed to pay far less than state-approved minimum wage when it is imposed. Once again, let’s assume we’re in the base year, with prices at a level of 1. Think of a scenario in which a government mandates that all businesses must pay at least $5 per hour to their employees. Supply and demand are not equal at this wage.

The effects of the welfare state policies on employment

First of all, it is important to determine the effect of the minimum wage imposition policy of the government on the economy, specifically the unemployment situation in Spain. This indicates that greater hourly pay is attracting more young individuals to labor jobs and encouraging current laborers to work additional hours. The pay (W1) and employment level (E1) of these laborers are set by the market without government interference when the supply and demand curves meet. Well, in addition to the minimum wage, I discussed earlier that the economic crisis is having serious repercussions on the European labor market. One of its most severe expressions is unemployment, which runs the risk of being structural. The European data, which expresses an unemployment rate in the euro zone of 11.90%, and a total of 26.2 million unemployed in the European Union, are extremely worrying. The figures intensify as regards young people under 25 years of age, with an unemployment rate, in January 2013, of 24.2% in the euro zone and 5.73 million unemployed in the European Union. Work is a phenomenon with social relevance, and job stability is the basis for the exercise in our society of fundamental rights. Work is “the first and essential source of social citizenship rights, it confers individual freedom, ensures economic progress, guarantees social cohesion and solidarity and offers material security”. Under current conditions, the functioning of the labor market does not guarantee citizens economic independence or a means of subsistence with which to earn a living in decent conditions. Stable, well-paid employment with adequate social protection places those who enjoy it in a higher social position than the rest of the population. At the opposite vertex are the unemployed, especially the long-term unemployed, with those hired temporarily and/or part-time remaining in an intermediate stage or category. From this hierarchical perspective of employment situations, the most vulnerable groups are expelled from that superior social position. A situation has been reached in which stable employment and full-time is no longer a right to which any citizen has access without difficulty, but a privilege enjoyed by only a few. Large groups of citizens live their existence in situations of extreme precariousness, with the risk of bankruptcy of the “citizenship status of a mature constitutional democracy”, and serious damage to their family and social ties. The current duality divides the labor market into a primary sector and a secondary sector. The first of them with better paid, stable and more prominent jobs in society, with job security, advancement possibilities and established working conditions. The secondary sector is marked by poorly paid, unstable and dead-end jobs, subjected to suspensions and dismissals. In this situation, unemployment in the secondary sector is not associated with workers who hope to recover or achieve an improved situation, but is inserted in a process in which an unstable job with precarious working conditions is transferred to another equal or worse. The International Labor Organization (ILO) has estimated that in 2013 there will be 7 million new unemployed, representing a total of 210 million unemployed people in the world – one third under 25 years of age. These data show the devastating effects of the economic situation on the labor markets of all countries. Since the crisis began, more than 5 years ago, 30 million people have joined the global unemployment figures. The risks of impoverishing the population and worsening the consequences of the physical scarcity of resources are undeniable: 900 million people today live below the poverty line, with a notable increase in this situation in the Western world. Well, specifically for Spain below depicted graph shows the rising situation of poverty in the country. This means that many salaries are today below the subsistence minimum, without reaching the necessary income to maintain a family at the levels of expenses necessary for modern societies. We are thus moving “towards poverty amidst wealth”, with a rapid expansion of welfare that embraces “ever-increasing masses of employed” and unemployed workers, and a “rapid and intense trend towards polarization of the population. income”.

Figure 2: Poverty Trend in Spain

Source: World Bank Database (2021)

Stay Zen! Your Paper’s in Good Hands.

• We polish your paper till it shines—proper style, no glitches
• Got a question? Shoot a message directly to your writer anytime
• Free revision? Check. Dope title page and bib? Double check
• Wallet-friendly rates and a money-back promise if things go sideways
• No ChatGPT or other AI nonsense here. We’re all about the human touch
• Your biz stays our biz. Full confidentiality, no exceptions

Bye-Bye, Burnout! Slash 15% OFF using the coupon code: SMPLZ15

Order Now

Poverty in Spain for the period from 2002 to 2020

A significant part of the population is employed irregularly and lives in lower living conditions than what has been considered the” normal average level “of the working class, showing the inability of the current economic system to provide adequate working conditions. The degree of failure of the labor market is measured not only in terms of existing open unemployment rates. It must also be repaired at the level.

Reduction of labor costs and labor flexibility

The common argument is that lowering business costs encourages companies to create jobs, and that the high amount of severance pay is an obstacle to hiring indefinitely. This position, which considers that, in times of crisis, the cost of dismissal prevents staff adjustments and makes it extremely difficult for companies to function, ultimately affecting their very subsistence, promotes the “blaming” of labor regulations by considering that “The system of guarantees articulated on stable employment” is the direct cause “of the elimination of jobs and the inability of the economic initiative to produce new ones in times of crisis.” This option, which, from purely economic approaches, places at the center of the debate the cost of dismissal as an element that directs the processes of job creation/destruction, does not pay attention to the consequences that the termination of their employment contract has for the worker, nor does it take into consideration that in countries where the Segmentation and duality of the labor market are a hallmark, the price of dismissal only acts on a part of the labor force – workers s fixed—, being practically zero for the company the cost of termination of the temporary contract.

In times of economic recession, companies stop renewing temporary contracts, causing a rapid increase in unemployment, which gradually extends its duration, because companies do not hire new workers either. Some affirm that, in this situation, temporary hiring can be an opportunity, because the fear of companies to hire is attenuated if they know that they can do it temporarily and see the temporary offer expanded. The introduction of restrictions to a certain type of contract determines its contraction, in the same proportion as the use of other temporary contracts with fewer obstacles or incentives increases. However, the negative effects derived from the segmentation of the labor market and the high rates of labor turnover of this option are irrelevant. This conception isolates the stability/temporality of employment from its consequences on the living conditions of the affected workers —considered mere surpluses of labor—, and dissociates itself from the political dimension based on the recognition of citizenship rights in its dimension. collective and individual. Thus, alternative responses are necessary that focus the discourse on the consequences of being deprived of work for a person: their expulsion “from a socially and culturally decisive sphere, that is, from a complex situation in which Through work, “rights of integration and participation in society, culture, education and the family are obtained”.

In Spain, 23.7% of the people who work do so with a temporary contract. Only Poland, with a temporary employment rate of 27.6%, surpasses Spain in this classification, the community average being 13.9%. The percentages are accentuated when those affected are young people under 24 years of age. Of these, 61.4% work with a fixed-term contract, which makes Spain one of the OECD countries with the highest youth temporary employment, with an average of 25.3%. Only Poland and Slovenia, with rates of 65.6% and 74.5%, respectively, precede Spain in the ranking.

It is said that in periods of economic expansion, the temporary nature of employment contributes to facilitating the incorporation of young people into the labor market. It is unquestionable, however, that precarious employment makes workers more vulnerable and that, in crisis situations, its negative effects have a greater impact on fixed-term contracts. The destruction of temporary employment, massive during the current economic crisis, does not sit well with the discourse of the rigidity of the Spanish labor market. The evolution of employment/unemployment in recent years exemplifies a model of labor relations with high doses of external flexibility -in entry and exit-, which makes the adaptation of companies to the economic situation is carried out through adjustment formulas employment, and not resorting to internal flexibility mechanisms.

Since the beginning of the crisis, Spanish labor legislation has been subject to continuous changes of notable intensity. The regulations approved in recent times promote the deregulation of the labor market and provide greater flexibility to the institutions that make up labor law, as an essential requirement to favor job creation. With these reforms, the Spanish government has complied with external demands from international organizations and institutions, which have wanted to see in the rigidity of the labor market the greater intensity of the effects of the crisis in Spain. In this process, the consequences of the labor reforms that, since the nineties of the last century, were installed in Spain and that, with flexible orientations of the labor market, contributed to the precariousness of employment, have not been taken into account in this process. Without relevant consequences in the net creation of jobs.

The latest reforms introduce devices for the deregulation of labor relations, making the unilateral decision of the employer the main source in determining the labor rules. The legal regime for dismissals is also subject to elements of extreme flexibility, with an extension of the causes, a significant reduction in the cost of compensatory compensation and the elimination of administrative requirements. From these 70 coordinates, labor law is justified, not in its guardianship function, but in its contribution to economic growth and business productivity. It is assumed that in a fluid and competitive market, “shaped by economic motivation”, wages must be flexible, employers must adjust their level of employment based on productivity, and unemployment “is the result of personal barriers that prevent access to the job within this framework of the competitive market”. In a dual labor market, divided into a primary sector and a secondary sector, dismissal puts job security at risk and prevents workers from identifying with the institutions. The secondary sector is marked with unstable jobs, affected by outsourcing and the refusal, for reasons of costs and risks, to recognize a primary market status for those who make it up. Business flexibility in the hiring system means that permanent employment ordinary, with greater guarantees, tends to decrease.

The greater volume of temporary employment persists, and intermediate figures appear, such as the new indefinite contract to support entrepreneurs, which replaces the indefinite contract to promote employment. This new contractual modality incorporates a trial period of one year, during which the employer may freely terminate the employment contract, without cause or notice, and without compensation for the worker. This contract shows that in order to create/destroy employment, the institutions promote temporary employment with “hybrid” and apparently stable contractual figures, which fit into a fragile and precarious labor market, with great flexibility of labor, low salaries and a high volume of unemployment.

Flexibility in dismissal

It is said that in Spain it is complex and expensive to fire because its legislation is one of the most rigid in terms of employment protection. It is even stated that labor rigidity is one of the highest in the world in this country, and the dismissal legislation the most inflexible. Is, in reality, the dismissal in Spain more rigorous than in the rest of the countries of the European Union? The 2010 International Monetary Fund report on the Spanish economy stated that the rigidity of the labor market, a consequence, to a large extent, of the high costs of dismissal, was one of the main causes of the country’s high unemployment and the increase of temporary hiring. The solution passes, it was stated, through a “renewal” and “modernization” of the legal regime of dismissal, which makes it accessible to companies, which reduces costs and eliminates the intervention of the administration. With these measures, employers will lose their fear of hiring, because for them firing will be much easier and cheaper: the cheaper dismissal gives the employer confidence and increases his ability to react to the market and the economy.

This approach blames the labor law guarantee system for the destruction of jobs, creating a direct connection, not between the causes that contribute to the alteration of employment, but between the level of protection against dismissal and the market situation. The problem of dismissal is simplified and transferred to the logic of business benefit, regardless of the effect on workers’ rights or the social impact of unemployment. The facilitation of dismissal, with a reduction in economic costs and reduction of the causal rates, offers a reductionist vision that only takes into account the economic aspect of the dismissal, neglecting important social aspects. In Spain, the latest labor reforms provide tools for the adjustment of workforce in the public and private sectors. The reduction of the economic costs assumed by companies and public administrations, the elimination of administrative controls, the suppression of the salaries of workers. Processing, and the reduction of compensation for unfair dismissal, are justified in the statement that “the only way to create employment is to cost less to destroy it”. The registered data confirm that the labor reform approved in Spain in 2012, with the declared objective of guaranteeing flexibility in the management of the company’s human resources, the security of workers in employment and adequate levels of social protection, does not create Employment neither reduces unemployment nor avoids contractual duality. On the contrary, it increases layoffs and lowers wages in the midst of the economic crisis, acting as a weapon of massive job destruction.

After one year in force, the number of employed persons has fallen by 850,000 people, and the total number of extinctions has increased by 23%. Dismissal for objective reasons, with compensation of 20 days’ salary per year of service and a maximum of 12 monthly payments, has increased by 49%. Employment regulation files – collective redundancies compensated with 20 days per year – have increased by 66%. The business culture that makes temporary employment and dismissal without cause priority and permanent adjustment factors persists. The application of alternative measures of internal flexibility, typical of the most advanced countries of the European Union, are projected in Spain through certain mechanisms of regulation of temporary employment – suspensions and reduction of working hours – that in 2009 were publicly encouraged in the form of price bonuses.

It does not seem that Spain can speak of a more inflexible or rigid labor market than in other economies. The Spanish system is notably more adaptable with regard to temporary employment and internal mobility, offering average dismissal costs similar to those of other countries, although lower in certain extinction modalities. Unlike other European systems, there is no need in Spanish legislation to prove the impossibility of adopting other less aggressive measures for workers than contract termination, leaving both the number of dismissals and the selection of those affected to mere business discretion. Another peculiarity of the Spanish model, which makes the difference with European countries, is the absence of an obligation to incorporate mitigating or compensatory measures for those affected by the termination —replacement programs or priority system in hiring—. In Spanish legislation, the administrative authority, the workers’ representatives and the judicial bodies may not reject the dismissal on the grounds that no measures of this nature have been taken.

Article 4 of ILO Convention 158 lists two types of causes that can justify dismissal: those related to the ability or conduct of the worker, and those based on the operating needs of the company, establishment or service. The emphasis that the ILO places on the causes should not hide that “the trigger for the dismissal is the will of the employer” and that the cause “is the justifying basis of that business will”.

On the other hand, the formal requirements to which the termination decision must be adjusted. They are essential to guarantee that the worker knows the reasons that justify the entrepreneurial will, avoiding their defenselessness. From these coordinates, the dismissal procedure is defined by the Spanish Constitutional Court as a “formal factor of guarantees”.

Experience, a year after the 2012 labor reform, reveals that companies are continually flawed in the processing of collective dismissals, avoiding the most essential formal and procedural elements. This anomalous situation is causing a progressive judicialization of the employment regulation files and the declaration of their nullity due to procedural deficiencies and defects. The 2012 labor reform is installed in the courts, the protagonists being the collective dismissals which, after suppressing until then mandatory administrative authorization, are subject to increasing judicial control. This situation has made it possible to clarify in court some dark and controversial points of the current labor legislation. Most judicial pronouncements are very rigorous in complying with the legally established requirements and formal aspects, requiring companies to provide the necessary documentation and information. In turn, it is obliged to comply effectively with the procedural procedures provided for in the state regulation: that during the consultation period established by law, there is and is carried out in the company an authentic negotiation process with the representatives of the workers, that it will be governed by the principle of good faith.

When it comes to proving the causes of collective dismissal, the courts apply a principle of functionality, which involves determining the way in which the poor results of the company affect employment, forcing the employer to present conclusive evidence. The judicial doctrine handles a criterion of reasonableness and proportionality, relating cause and effect of the termination measure.

In this situation, judicial sanity can contribute to reestablishing the criteria for collective dismissal, mainly those relating to worker representation and consultation periods, putting an end to the insecurity created by the labor reform. It is one thing that Spanish legislation has made the measures aimed at ensuring that companies more easily adapt their workforce to the economic situation, and it is quite another that they should not be subject to certain requirements. Complying with the period of consultations with the representatives of the workers in the company is not only a formal requirement aimed at guaranteeing negotiation in good faith, but an unavoidable budget, which is directly connected with the adequate justification of the termination measure. The parties have to negotiate in good faith to reach an agreement, in such a way that if it is demonstrated that the company has not intended to complete the consultation period with consensus, or that said period was convened exclusively to formally comply with the procedure foreseen in the law, being void of content, the dismissals must be declared void. It should not be ignored that judicial review of the decision to dismiss is expressly recognized in Article 8 of ILO Convention 158. The reaction to the unilateral decision of the employer – the Spanish Constitutional Court will say – “is one of the basic aspects in the structure of the” fundamental rights recognized in the constitutional text “and, in turn, becomes a conditioning element for the full exercise of the other [rights] of the same nature and even that which guarantees effective judicial protection “. In short, the demand for cause, compliance with formal requirements and judicial control” form a all inseparable from the concept of dismissal “, both from which the operation of the company is justified, as well as those based on causes inherent to the worker.

5. Conclusion

The impact on the labor market by flexible measures should favor mobility and job creation. Greater labor flexibility has not translated into a systematic reduction in unemployment. It seems, on the contrary, “that the almost obsessive insistence on this question may be negatively affecting the question of long-term employment.” It has not, therefore, been the labor institutions that have caused differential unemployment. The high level of unemployment in Spain is explained by the malfunctioning of a production model, which today should be considered exhausted, and which has not been able to absorb the labor surpluses that it has generated, having been more attentive to speculative movements in the short term than to develop solvent productive structures. The explanations for the generation of unemployment are not labor. The lack of consideration of the causes that have caused it has led to prioritizing labor law reform strategies as the backbone of employment policies. This solution, which involves labor deregulation, has led to a degradation of social rights, greater inequalities and poverty, and an enhancement of corporate authoritarianism. Therefore, it is urgent to review the institutions that regulate the economic system and rethink a model of labor relations that prioritizes training, participation and equal opportunities. In short, a productive model that generates social quality and satisfies the basic social needs of citizens.

REFERENCES:

• Akee, R., Zhao, L.Q. and Zhao, Z. (2019), “Unintended consequences of China’s new Labor Contract Law on unemployment and welfare loss of the workers”, China Economic Review, Vol. 53, pp. 87-105.
• Akinbobola, T.O. and Saibu, M.O.O. (2004), “Income inequality, unemployment, and poverty in Nigeria: a vector autoregressive approach”, The Journal of Policy Reform, Vol. 7 No. 3, pp. 175-183.
• Altman, M., Mokomane, Z. and Wright, G. (2014), “Social security for young people amidst high poverty and unemployment: Some policy options for South Africa”, Development Southern Africa, Vol. 31 No. 2, pp. 347-362.
• Aurangzeb, D.R. and Asif, K. (2013), “Factors effecting unemployment: a cross country analysis”, International Journal of Academic Research in Business and Social Sciences, Vol. 3 No. 1, pp. 219-230.
• Barrett, G.F. (2000), “The effect of educational attainment on welfare dependence: evidence from Canada”, Journal of Public Economics, Vol. 77 No. 2, pp. 209-232.
• Bian, S. (2014), “A study on the step-wise assistance of Basic Living Allowance of urban residents and its negative income tax mechanism”, Chinese Journal of Population Science, No. 1, pp. 7-19 (in Chinese).
• Cai, F. and Chan, K.W. (2009), “The global economic crisis and unemployment in China”, Eurasian Geography and Economics, Vol. 50 No. 5, pp. 513-531.
• Cai, F. and Du, Y. (2011), “Wage increases, wage convergence, and the Lewis turning point in China”, China Economic Review, Vol. 22 No. 4, pp. 601-610.
• Cavanillas, D. (2015). “Spain’s Welfare System: An Overview”. Policy in Practice. Retrieved from: https://policyinpractice.co.uk/spains-welfare-system-an-overview/
• Chakravarty, S., Lundberg, M., Nikolov, P. and Zenker, J. (2019), “Vocational training programs and youth labor market outcomes: evidence from Nepal”, Journal of Development Economics, Vol. 136, pp. 71-110.
• Romero, T. (2021). “National minimum wage per day in Spain from 2008 to 2020”. Statista. Retrieved from: https://www.statista.com/statistics/456447/spain-national-minimum-wage-daily/
• World Bank Database, (2021). “Poverty”. Retrieved from: https://data.worldbank.org/topic/poverty
• World Bank Database, (2021). “Unemployment”. Retrieved from: https://data.worldbank.org/indicator/SL.UEM.TOTL.ZS