Unemployment in Spain High, But so is Underground Economy

Added on by Arturo Gutierrez.

A note about that. The numbers are frightening, and they haven't gotten much better. But we aren't taking into account a few things. First let's look at the numbers released by Eurostat for May: 

12% Unemployment in Europe

26.9% Unemployment in Spain

 

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OK, as stated and reported by the Spanish government, those numbers are accurate. And we aren't dealing with an eastern African country so you wouldn't expect data manipulation in those numbers. But the reality is that there is a large underground economy in Spain, still. In 2011 it was estimated that there was 82 Billion Euros a year in undeclared earnings. That's nearly a quarter of GDP. Last October it had dropped 2 points to 22%. The short 15 months that I lived in Madrid there was little indication of unemployment, but there were clear signs of an underground economy with citizens lining up in the morning for their social benefits and immediately heading to work after receiving them. Those unemplyment numbers of 26.9% and 50% for young adults should be considered under a different light if a quarter of GDP is not being reported.

So are there any benefits to the underground economy? The obvious one would be tax evasion, which isn't a good thing, but if it keeps your firm afloat and allows for you to keep employees, even if they are working at a lower rate, then, yes, those are benefits; Specially if the alternative is providing revenue to a government that is increasingly becoming difficult to trust. And if tax evasion by paying employees under the table is a terrible thing, then most American companies expatriating to a carribean island should be considered to be doing the same thing.  In a way, the underground economy is one large signal and response to government ineptitude.

Point is, you can't talk about unemployment or a faltering economy without mentioning an underground economy, the estimated tax revenue loss from undeclared earnings, and the benefits it's providing to it's citizens. Many still have jobs, perhaps at much lower pay, but as I experienced it n Madrid, the stated unemployment "numbers" were not aligned with reality.