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MADRID: The number of people unemployed in Spain, which has the highest jobless rate in the European Union, fell for the first time for five months in December, the Labor Ministry said Tuesday.
There were 4.1 million people registered as jobless last month, down 10,221 or 0.25 percent from November, the biggest decline for the month of December since 2000, it said in a statement.
But compared with the total 12 months ago the figure was still up 4.50 percent, or 176,470.
“December is is normally a weak month, if unemployment lowered in December it is a good jobless figure,” Prime Minister Jose Luis Rodriguez Zapatero said in an interview with Onda Cero radio.
The government does not provide a jobless rate, but the national statistics institute, which uses a different calculation method from the Labor Ministry, said in October that the rate had dropped to 19.79 percent in the third quarter of 2010 from 20.09 percent in the second.
It was the first drop in the unemployment rate since it dipped to 7.95 percent in second quarter of 2007, its lowest level since the country returned to democracy following the death of dictator Francisco Franco in 1975.
The institute will publish fourth quarter unemployment figures on Jan. 28.
Last month Zapatero’s Socialist government announced it was scrapping a 426-euro ($568) per month subsidy for the long-term unemployed as part of austerity measures to slash the public deficit and ease fears that it will need an E.U. bailout like Greece and Ireland.
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Unemployment Internal Assessment
For the first time in many months Spain is experiencing an unemployment rate drop, even though it is the country in Europe with the highest unemployment rate. Unemployment is an economic condition when people seeking jobs remain unhired, and is expressed as a percentage of total available work force. The type of unemployment Spain has been seeing is cyclical unemployment. Cyclical unemployment is usually related to the national output of a country, this is because when national output is high, the work force is also high meaning that cyclical unemployment is low, and vice versa. Cyclical unemployment is usually described as the result of businesses not having enough demand for labour to employ all those who are looking for work.
The recession caused aggregate demand to fall, meaning that consumers are spending less money on goods and services. Recession is defined as a period of economic decline, usually accompanied by a drop in stock, increase in unemployment, and a decline in housing market. Aggregate demand is the sum of all demand in an economy, and can be calculated by using gross domestic product (GDP) of a country, and is represented by the formula: (AD) = C + I + G (X-M).
This graph illustrates some of the effects of the recession on a country’s economy. As shown aggregate shifts from AD to AD1, this is because the consumers are spending less money during the recession period making the demand on products less, also this moves the equilibrium from E1 to E2, causing a movement along the supply curve. When people are buying less goods, firms are not required to produce as many goods, meaning that less work is required and causing unemployment in most cases.
As the graph illustrates DL (Labour demanded) shifts left to DL1, because of the firms and companies not needing as much work force as before. This leads to a change in the equilibrium point moving from E1 to E2. As the equilibrium point shifts, this makes both the wage rate and number of workers decrease, the space between Q2 and Q1 is the amount of workers who have become unemployed during the recession. When looking at the graph this should show that the average wage rate would fall as well to match E2, but the wages will stay the same because of wage stickiness.
This means that since wages do not fall, the actual number of unemployed people is between Q1 and Q3. Wage stickiness means that wages and prices do not instantly or even quickly adjust to changes in demand or supply during recessions. This is because it is proved that cutting wages during a recession would hurt morale in most companies, making the employed workers less efficient at their job. Wage stickiness can be looked at from two aspects, the short and long run. In the short run only minor differences would be seen, but in the long run they might fall/grow slowly.
Even though the recession caused unemployment in Spain, during December in 2010 the unemployment rate fell. The cause of unemployment falling could be linked to the season. During the Christmas season, the demand for normal and luxury goods are high, this means that the demand for labour would also increase because of the sudden change in consumption of goods. A luxury good, is a good or service that is not essential but makes life more enjoyable. As the demand for labour increases, the unemployed workers will be able to get a job during the season; this is also known as seasonal unemployment. Seasonal unemployment is a type of unemployment that occurs due to the season of the year.
The industries affected by seasonal unemployment are tourist industries, fruit picking, and catering firms. This could explain whether the recent unemployment drop in Spain is a phase because of the seasonal unemployment, or if the unemployment rate will continue to fall throughout the year. In either situation it is essential for Spain to focus on the unemployment rate if they are to overcome the recession as fast as possible, and start pumping money into the economy. This is because as mentioned in the article the demand for labour increases as demand for goods increases, this would open job opportunities for unemployed citizens. And as those people will now have a steady income, making them spend more money than before, and helping the economy.