Even if something is expected, it is still shocking when it finally happens. Spain's labour market statistics for March are a case in point. We focus on Spain because, due to its size, structural unemployment, seasonality, and dependence on temporary employment, it tends to dominate eurozone-wide statistics. Also because, as we noted, Pedro Sánchez is not so much asking for coronabonds as for a European unemployment insurance fund. Part of the shock in Spain comes also from the fact that the social security statistics released yesterday, while dire, don't reflect the scale of the work stoppage due to the coronavirus. Another observation is that Spain is also strongly dependent on the tourism and leisure sectors, which were about to enter the high season and are unlikely to recover swiftly, whether or not other economic sectors experience a V-shaped slump. Spain is facing a long slog to get our of the Covid-19 crisis.

Perhaps the chart put out by the Spanish ministry for social security that best reflects the dynamic is the one below. It shows that the Spanish economy was doing slightly better employment-wise than last year until March 12, when school closures began. Then the country lost just under 900,000 jobs, as many as were lost during the worst 100 days of the Great Recession in 2008/2009.

source: Spain's ministry for social security

These 900,000 jobs lost don't include the anywhere from 1.5m to 2m or even 3m jobs that various press sources estimate for the number of people that have been furloughed for the duration of the health crisis. Workers under temporary employment suspension or time reduction are still registered as employed. Moreover, only about 600,000 of these have had their employment suspension processed by the social security administration. Statistics for that won't be available for a while.

But, overall, we can say that at least 2.3m, and possibly up to 3.8m people were not working as a result of the Covid-19 lock-down before the government decreed a stop to all non-essential economic activity in an attempt to stop the outbreak cold. This is at least 10% of the labour force, and possibly up to 16%. Not all of these will show up as unemployed either in the next labour force survey, which put unemployment under 14% at the latest update. But anywhere between 24% and 30% of Spain's labour force was not working at the end of March.

The problem, however, is that employment won't bounce back. The 900,000 people who lost their jobs were mostly on temporary contracts, and mostly in construction, hospitality, and leisure. Construction will bounce back. Hospitality and leisure, not so sure. There is every reason to believe that, even if the present outbreak is contained, soft restrictions will remain to prevent a repeat. Such restrictions may affect international travel, as well as mandates to keep 1-2m distance between people at restaurants and public events, or to limit occupation rates at seated venues. People may be advised, or may decide on their own, to wear masks and gloves when out of the home. These measures will be fatal for the tourism industry and a big drag on the hospitality and leisure sectors. Many firms in these sectors have already laid off their temporary workers. But contract suspensions will end as soon as the lock-down ends, and workers cannot be laid off for six months after that. Employers in the tourism industry, faced with the obligation to keep their workers for six months with no tourists, may either put them back into work suspension, or end up going out of business.  

Anybody who thinks either a vaccine or herd immunity will be achieved before 18 months or so is either very optimistic or hasn't thought things through. Spain may be looking at least at a 12% employment reduction for the duration. And this will be seen as an asymmetric shock as many other EU countries don't have the same dependence on tourism or on temporary employment.