Students on the campus of the Autonomous University of Barcelona, at the end of March CRISTÓBAL CASTRO
The legacy left to young generations was bad before the pandemic.
But after the Covid crisis, the inheritance will be worse, warns the Bank of Spain.
The loss of face-to-face classes, a university with quality problems, a previous expansionary cycle that was not enough to recover the income of young households or reduce the uncertainty about their income, a higher proportion of young people without income due to the pandemic, a high labor vulnerability, ERTE that have benefited them less, difficulties in accessing housing, rent that absorbs higher incomes, the need to lower public debt in the future and an increase in spending on pensions due to the latest government measures.
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The picture looks difficult. This Monday, the Director of Economy of the Bank of Spain, Óscar Arce, presented a document entitled
The crisis of covid-19 and its impact on the economic conditions of young generations
, at the University of Alcalá, in a meeting organized by Orfin and the Association of Economic Journalists. In this intervention, Arce first recalled that the economic decline due to the pandemic is unprecedented and that, despite the advance in vaccination, there are still many economic uncertainties about the use of accumulated savings, the rate of recovery of tourism or the damage to the business fabric. And then he has explained step by step how this crisis is going to hit young people the hardest.
Regarding education, Arce has highlighted that it is still unknown what has been the loss of knowledge in students due to the reduction in face-to-face classes. In the United States and Belgium there is already evidence that performance in mathematics has fallen. And this happens when Spain already had an unfavorable situation, with one of the highest percentages in Europe of the population between 25 and 29 years old that only had primary education. And with math skills in that age group also among the worst compared to our peers in the euro zone. That said, the good news is that the lack of career opportunities has increased the number of young people continuing their training.
"The quality problems of the educational system condition the employability of university students," the paper maintains. When compared to the euro zone, Spanish graduates have more difficulty finding employment and accessing a position commensurate with their training. And the supervisory body gives its recipe: "It is necessary to improve the selection systems for teaching and research staff and reinforce funding by linking it to objectives of excellence."
On the other hand, the previous cycle of economic growth, which was interrupted by the pandemic, has been insufficient for young households to fully recover the income they had lost during the financial and sovereign debt crisis. Maple. And in his opinion it has not served to reduce the high uncertainty that exists about their incomes by having a smaller presence in the labor market, suffering from a high temporality, having lower incomes and experiencing more difficulties in periods of crisis.
Arce has been very critical of labor market legislation: “It is clear that we have not done well because the problems of the labor market and the poor situation of young people, in some cases with the worst figures in Europe, have been known for 20 years and we have not managed to stop them. The problem of duality in the degree of protection is another case, which implies that an army of people with temporary contracts lose their jobs when a crisis hits. Now it has been seen because of the more than 900,000 new unemployed, some 700,000 had temporary contracts. There is a lot to do and we haven't done our homework ”, he declared.
And the pandemic has had a greater effect on young people because they work to a greater extent in social activities, those that have suffered the most from restrictions and have been less able to telework. Being on temporary contracts, many have also lost their jobs and have not even been able to take advantage of the ERTE, the formula that, on the other hand, has favored the majority of positions affected by the pandemic. "Curiously, the ERTEs, which have served to prevent job loss in general, have not been a shield for young people," Arce commented. And the re-entry percentages from ERTE to employment fell in the final stretch of last year, especially among young people. Consequently, a greater loss of income has been accommodated during the pandemic, maintains the Bank of Spain.The percentage of people under 30 without income has increased over figures that were already high: from 30% before the covid to 35% as of December 2020.
And these effects occur in a context of high vulnerability in the labor market, since in recent years their contracts have decreased in duration and number of hours worked. In those under 30 with low education, the average duration of their contracts has fallen in the last decade from four months to below three months.
These labor and financial difficulties have resulted in a delay in the age of emancipation, said Arce. Around 87% of those born in 1988 lived with their parents at the age of 26 compared to 82% of those born in 1976. And the proportion of young people who own their homes has been decreasing for those born after 1980. "In one generation, young owners have dropped almost 20 points, something that I had never seen in Spain," he said. As there is greater rigor in the granting of mortgages after the financial crisis, they have been the ones who have accused it the most due to their lack of savings.
As a consequence, the percentage of households headed by a family under 35 years of age living in rent rose by more than 12 points to 35%, which combined with a rigid supply has led to sharp increases in rents that have absorbed significant parts of youth income.
"Spain is the European country where young people spend the highest percentage of their income on rent, 40%", stressed the director of Economy of the supervisory body.
And directly related to the age of emancipation is the birth rate.
The Bank of Spain is also concerned about the effects of the pandemic on it.
The INE has already detected a 20% drop in births in January 2021, Arce recalled.
The pandemic has also required a strong fiscal stimulus that must give way in the future to a sustained and prolonged process of budget consolidation, of which a significant part will correspond to young people. In addition, the recent adjustments that have been made to pensions, such as updating them again with the CPI, will considerably increase Social Security spending. "Now there is already a very important deficit and in addition it would be necessary to raise the contributions by up to 8 points to be able to maintain the current benefit rate of the pensions," Arce stressed. And that's as long as there is an optimistic employment rate of 80%. Now the ratio is at 60%. Despite these circumstances, Arce pointed out that "the elderly mobilize more, go out more to vote, and this is reflected in the resistance to the pension reform."
Arce has indicated that working lives must be prolonged and accommodated to biological lives, which requires training and retraining of the elderly.
"It has been documented that workers lose certain skills when they reach age, but others are enhanced with age and tasks can be reassigned, we will need to be active longer if life expectancy is prolonged and keep more people employable" , has stressed.
On the other hand, Arce has pointed out that the necessary environmental transition will entail non-negligible economic costs.
And European funds should be leveraged to avoid some of these costs and to drive and finance reforms.
According to the conclusions of the Bank of Spain, the challenges of the Spanish economy, which were already great before the pandemic, largely affect young people and have been exacerbated. To deal with these problems, Arce has called for a comprehensive reform plan, a consolidation of public finances and the best possible use of the coming European funds.