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This morning’s Spanish unemployment number was staggeringly high, rising to 21.3% of the population in Q1. But it may be masking two domestic problems the country is about to reform, in an attempt to bring that number down and raise tax revenues.Spain’s government is about to launch a strategy aimed at cutting black market employment, a portion of the economy which makes up a staggering 17-23% of the country’s GDP, according to Bloomberg. That puts Spain slightly behind Greece, but on equal terms with Italy.
The problem is these employees are at once avoiding government taxes, getting unemployment benefits, and increasing the unemployment rate. Visually, it makes the economic situation look worse than it really is, while it also damages the government’s ability to tame its debt situation.
The plan, which will be announced later today, aims to incentivise people to come clean about their private wages, and stop people from getting full unemployment benefits while they are working privately.
While Spain may have cut more jobs in Q1 2011 then all of 2010, the underground economy may be having a strong impact on this statistic.