Recently I read a very interesting article in the Diario Córdoba, the local newspaper. The economy is bad all over the world, but Spain is second only to Italy in Western European unemployment. In certain areas, the unemployment rate is around 30%. When unemployment gets this high, governments begin to worry about increasing crime and social unrest. But none of this is happening in Spain. Why?
As an emergency measure, President Zapatero (PSOE, Partido Socialista Obrero Español, or Spanish Socialist Workers’ Party) extended unemployment benefits. The unemployed people can receive an additional 420€ per month, an amount widely considered to be a joke. In Spain, it is estimated that there are over half a million people who qualify to receive the additional payment. However, only 28,000 people have signed up. Why?
The answer, according to this article, is that the “submerged economy” is booming. Even though unemployment is very high and the economy is in the tank, there is actually more money changing hands on the streets. People who accept the symbolic 420€ per month must also attend employment training classes. However, most workers choose to spend their time working in undocumented jobs which actually bring in money….money which is not subject to the high Earned Value Taxes.
This illustrates what can happen when a government becomes “too” socialist, but maintains a free market. Businesses will choose to operate under the radar, rather than going out of business because they can’t afford the high taxes. The people who really pay the price for this are the workers. By working in undocumented positions, they are much more exposed to abuse by employers. Of course the government attempts to enforce the labor laws, but the sheer number of workers and businesses makes it a near-impossible job.
Is there a lesson for America in all this?