When a 37-year-old worker here named Juan was laid off from his job delivering and assembling furniture for Ikea customers six months ago, he joined the legions of Spanish workers without a job.
But like so many others, Juan has continued doing more or less the same work. Instead of staying on the payroll of Pantoja, a transportation subcontractor to Ikea, he hovers around the parking lot of the megastore, recruiting customers of his own by offering not only to deliver their furniture but also to do “general work,” like painting and repairs, all for the bargain price of about $50 a day.
“I will do anything except electricity and plumbing, where I really don’t have enough expertise to guarantee a safe and decent job,” said Juan, who did not want his full name used because he does not declare his income and did not want to run afoul of tax authorities.
As Spain’s recession deepens, more workers like Juan are finding refuge in a growing underground economy that amounts to as much as a fifth of Spain’s gross domestic product, according to some estimates. That has broad implications for Spain as it tries to lift itself out of the doldrums, make its labour market more competitive and meet the increasingly stringent demands of European lenders.
The happy news is that the size of the underground economy means that more Spaniards are working than it might seem, and that the official unemployment figure of 24.4 per cent — the highest in Europe — may be overstated by as much as 5 to 9 percentage points, economists say. That has given the Spanish government an important safety valve to preserve stability.
“Without the underground economy, we would be in a situation of probably violent social unrest,” said Robert Tornabell, a professor and former dean of the Esade business school in Barcelona. “A lot of people are now staying afloat only thanks to the underground economy, as well as the support of their family network.”
But the downside is that workers in the underground economy are not paying taxes, and may also be simultaneously collecting unemployment and social assistance benefits. Taken together, those forces are placing Spain’s government in a tightening pincer of shrinking revenues and expanding outlays. The lost revenues may amount to as much as $60 billion, economists estimate.
The dynamic is accelerating wage and price deflation, as workers do the same jobs for less, cutting the costs of services but also reducing the amount of money they earn to pour back into the sagging economy, as well as government coffers.
Many of these undeclared workers also compete directly with their former employers, undercutting official rates for services like delivery and electronics repair work by as much as 50 percent. Juan, for instance, said he now earned about half the salary of $1,000 a month he once made.
Many of those interviewed said they had no qualms about avoiding social security and other tax payments, saying it was their only way to make ends meet.
“Some people might think that I’m abusing the system, but I really see myself as a victim of a completely faulty economic model,” said Belen, a 34-year-old graphic designer whose Seville-based company closed last year. She has since continued to design logos for a sportswear company and other customers, but off the books, and did not want her full name to be used for fear of being pursued by tax authorities.
If anybody is taking advantage of the crisis, she said, it is “the customers who know that they can get a logo designed for a fraction of what it used to cost and who don’t seem particularly worried about what the designer’s own situation might be.”
In Spain, many workers, especially in the public sector, have virtually ironclad long-term contracts. But much of the labour force — more than in other European countries — is employed under temporary contracts with few protections. During bumpy times like these, they have been the shock absorber of the economy, exacerbating Spain’s painfully high unemployment rate.
Since taking office last December, the conservative government of Prime Minister Mariano Rajoy has tried to encourage employers to hire workers with long-term contracts but also to make it easier to fire them. Although Rajoy’s effort was more radical than previous government attempts to tackle the problem, some critics say the changes did not go far enough, leaving many too protected and others too vulnerable.
In the meantime, Spain’s black market grows and may amount to an estimated 19.2 per cent of its gross domestic product, according to Friedrich Schneider, a professor at Johannes Kepler University in Linz, Austria, who just completed a study of 35 Western countries.
While that is little changed from Schneider’s estimate of 19.3 percent in 2007, at the onset of the world financial crisis, Spain’s black market has now soaked up more individual labourers and small entrepreneurs, giving it an important impact on undeclared wages.
The underground economy would be even larger, some economists say, if not for the severe blow dealt to Spain’s construction sector, where during the boom years large deals were transacted off the books in cash. In addition, many of the labourers who once worked in construction were from foreign countries and working illegally, and have now been laid off.
Here in Andalusia, where the official unemployment rate is 33 per cent, the black market is thriving. The walls and lamp posts of its largest city, Seville, are plastered with personal ads, offering all manner of services, from gardening to computer repair work.
Flea markets are flourishing, too. Patricia Aragon Llamas, 31, shows up every weekend at the Charco de la Pava market to earn about $64 selling secondhand clothing and shoes.
“This market has doubled in size in the past year,” she said. “I’ve got a 3-year-old child and an unemployed husband, so I’m really beyond thinking about what’s legal or not, as long as it brings in a bit more money.”