Greece, Spain and Portugal / The Limits to the Unemployment Benefit Safety Net

Unemployment benefits are one of the safety nets available for people affected by the economic crisis in Greece, Spain and Portugal. This system — along with other social benefits such as pensions and increased remittance inflows from family members abroad, as well as aid from family members at home and, to some extent, informal economic activities — is somewhat mitigating the social aspect of the European economic crisis. However, these safety nets are limited.

Because of the pervasiveness of the crisis, long-term unemployment (people who have been out of work for a year or more) is growing in the EU periphery and currently affects almost half of the unemployed population of Greece, Spain and Portugal. This means that many people will likely lose their unemployment benefits before they find a new job.

System coverage is an additional issue, because only half of the unemployed in Portugal and two-thirds of the unemployed in Spain receive benefits. According to Greece’s Manpower Employment Organization (the institution that manages unemployment benefits in the country), only three out of every 10 unemployed Greeks receive state subsidies.

Rising unemployment is also leading to a shrinking tax base in these countries, giving central governments fewer economic resources to support a more expensive system of unemployment benefits. According to the European Union’s statistics agency, Eurostat, spending on unemployment benefits rose from 2 to 3.5 percent of gross domestic product in Spain between 2007 and 2010. During the same period, spending on unemployment benefits grew from 1 to 1.7 percent of gross domestic product in Greece and from 1.1 to 1.4 percent of gross domestic product in Portugal.

Since 2007, Spain, Greece and Portugal have each almost doubled their unemployment benefit expenditures. Other eurozone countries also increased their expenditure on unemployment benefits — Germany and France added about 100 euros per inhabitant during the same period — but Greece, Spain and Portugal had to do so while their economies were severely contracting. Moreover, Athens and Lisbon are under strict budgetary control as part of the terms of their bailout agreements with the European Union and the International Monetary Fund, while Madrid has also been forced to reduce spending under the terms of the banking bailout that it received in 2012.

This puts Athens, Madrid and Lisbon in the dilemma of applying further cuts in unemployment insurance and potentially generating more social unrest or keeping it at its current levels and failing to meet the European Union’s deficit targets. With unemployment projected to remain well above its pre-crisis level in the medium term, the sustainability of unemployment insurance will remain a key issue in the periphery of the eurozone.

Chosen excerpts by Job Market Monitor

via Eurozone Crisis Tests Unemployment Benefits

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