SPAIN: towards recovery via lower salaries?
Despite the economic gloom that has enshrouded it since the onset of the global financial crisis, Spain has at least one industrial bright spot: The country and its skilled, if underemployed, work force have once again become a beacon for European carmakers.
Four years of economic turmoil and the euro zone’s highest jobless rate have made the Spanish labor market so inviting — an estimated 40 percent less expensive than those of Europe’s other biggest car-making countries, Germany and France — that Ford and Renault recently announced plans to expand their production in Spain.
Even before those announcements, other carmakers had committed this year to new plants or expansion totaling as much as 2 billion euros, or $2.64 billion.
Some experts say such gains in competitiveness and investment are exactly what Spain needs for its economy to recover and to remove any doubts about whether the country can remain in the euro union.
Because Spain no longer has its own currency to devalue as a way to lower the price of its exports, it is having to find its competitive advantage in lower labor costs. Many economists have argued that societies cannot survive such painful downward adjustments.
But Spain, for now at least, seems to be defying that argument. Its trade deficit has been shrinking — down 28 percent for the first 10 months of this year, to 28 billion euros, compared with the same period a year earlier, according to newly released government data. That is the lowest level since 1972.
Although part of that trade improvement reflects lower imports, it is also a sign of better competitiveness as employers have been able to impose wage cuts without unleashing violent social unrest.