Sharp downturn in construction sector

The construction sector, one of the engines of economic growth in Spain over the last decade, is now faced with company closures and rising unemployment. As a result, the government has launched an action plan to reactivate the sector and minimise the impact of the adjustment on employment. The trade unions argue that allowing construction workers with at least 10 years’ seniority to retire at 60 years of age would ease the restructuring process.

The recent expansionary cycle in the Spanish economy was largely based on the booming property market. Between 1998 and 2007, the gross value added of the construction sector grew at an average annual rate of 5.9%, thereby exceeding the 3.8% growth in gross domestic product (GDP). In fact, construction reached a 10% share of national GDP, twice the overall figure for the eurozone. The importance of the construction sector is even greater in terms of employment. The sector was responsible for 25% of all new jobs created during the 1998–2007 period, and in 2007 it employed over 2.6 million people, accounting for 13.9% of all employees.

Recent trends

The development of the construction sector has been highly conditioned by the reduction in interest rates following Spain’s entry to the Economic and Monetary Union in 1999. The increased demand for residential housing was fuelled by the relaxation of credit terms by the financial institutions and was sustained by expectations of future price increases. Meanwhile, the major property developers took advantage of their borrowing capacity to diversify their activities into the energy sector and infrastructure management, and to finance their international expansion.

However, a change in the cycle of the construction sector has been evident since early 2006, when business started to fall sharply, the expectation of continuing price increases began to be corrected and mortgage rates began to rise. Reduced sales by property developers, lower land prices and the tightening of credit due to the international financial crisis have placed construction companies on the brink of bankruptcy. In the first quarter of 2008, unemployment in construction rose by 114,000 workers, an increase of 65% over the same quarter in 2007.

Government support measures

The government believes that the downturn in the construction sector is less sharp than the one that took place in the early 1990s. Moreover, the government places its faith in the increased labour market flexibility to reallocate to other sectors of the economy those workers who have lost their jobs in construction. Nevertheless, the government has presented a package of measures aiming to reactivate the construction sector.

  • It has introduced a housing and land policy, with the passing of a new Land Law which encourages the creation of protected housing and the development of a plan to encourage housing rehabilitation in order to counter the decline in general housing construction. At the same time, the government aims to provide access to housing for vulnerable groups.
  • In infrastructure policy, the government will promote measures in civil works to offset the decrease in construction of new housing through the Strategic Plan for Infrastructure and Transport. The government has promised to give the plan priority within the general public expenditure budget.
  • In September 2008, the government approved a ‘special plan for guidance, vocational training and job placement to deal with the increase in registered unemployment’. The plan, jointly managed by the autonomous communities and the National Public Employment Service (Servicio Público de Empleo Estatal, SPEE), provides a range of assistance measures to facilitate the reintegration of unemployed workers by involving them in careers guidance activities. The objective of the training provided for in the plan is to retrain unemployed workers, particularly those with work experience and those with the greatest employability problems, in order to facilitate their absorption by other, related sectors of the economy.

Trade unions propose early retirement

Despite the relocation plan approved by the government, serious doubts have emerged regarding the ability of industry and services to absorb the surplus labour created by the adjustment in the construction sector, given the current context of a widespread increase in unemployment (ES0809019I).

The construction federations of the main trade unions have called on the government to develop a law that provides for early retirement at the age of 60 years for construction workers who have at least 10 years’ seniority. The federations involved include the Federation of Construction, Wood and Related Industries of the Trade Union Confederation of Workers’ Commissions (Federación Estatal de Construcción, Madera y Afines – Confederación Sindical de Comisiones Obreras, FECOMA-CC.OO) and the National Federation of Metal, Construction and Related Industries of the General Workers’ Confederation (Federación Estatal del Metal, Construcción y Afines – Unión General de Trabajadores, MCA-UGT). According to figures from these organisations, some 50,000 construction workers, equivalent to 2.5% of all employees, could benefit from this measure. The trade unions consider that this provision would contribute to a less traumatic restructuring of the sector, as in practice these workers are the ones most affected by redundancy procedures.

Juan Arasanz Díaz, QUIT, University Autònoma of Barcelona (UAB)

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