Regularization and Employment: The Substitution Effect Funcas Does Not Confirm

Regularization and Employment: The Substitution Effect Funcas Does Not Confirm

The extraordinary regularization of immigrants has completely altered the evolution of registered employment in Social Security in 2026. In aggregate terms, the labor market appears to be accelerating and gaining workers at a pace unseen since 2022. However, this entire effect is produced by individuals who were already working in the underground economy, not through new job creation.
The question remains whether this mass of regularized workers is displacing Spaniards or simply filling roles that no one wanted to cover.

What Funcas’s Note Really Says

Funcas's note, cited by El Confidencial, outlines two hypotheses regarding the effect of regularization. The first is the “substitution effect”: many businesses, suddenly having access to a large pool of foreign workers they could hire through regularization, may have chosen them over hiring Spaniards. The second is the “composition effect”: regularized workers take jobs that Spaniards reject, such as those in hospitality, agriculture, or elder care.
The Funcas economist herself acknowledges that it is unknown how many of the regularized workers were previously working informally or how many started after regularization, making it impossible to accurately assess the current labor market trend. In other words, the note does not confirm the circulating media narrative: there is no conclusive evidence that immigrants are causing Spanish job losses.

The Facts Available: 337,900 Affiliates Through Regularization

As of August 31, regularization has added 337,900 new affiliates to Social Security, of whom 203,400 are men and 134,500 are women. In August alone, foreign contributors increased by 39,500, when typically they decrease that month due to the end of the tourist season. Simultaneously, overall affiliation lost 162,840 people in August, a seasonal decline that repeats every year. The reading is clear: the growth in aggregate employment is a statistical illusion, because most of the increase is due to the regularization of workers who were already in Spain, not job creation.

The Substitution Effect: Real or Imaginary?

This is where the debate centers. Some maintain that the arrival of regularized workers increases competition for low-skilled jobs and puts downward pressure on wages. In this view, it is argued that businesses prefer hiring immigrants willing to accept the minimum wage rather than Spaniards who demand more dignified conditions. Others, conversely, maintain that immigrants occupy positions rejected by Spaniards, such as delivery person, waiter, or farm laborer. The situation has even led to the term “Schrödinger’s immigrants”: they come to live off benefits without working, yet simultaneously take jobs from Spaniards. The reality, as is often the case, lies in between: substitution may occur in some sectors, but it does not explain the structural unemployment of 2.3 million people still present in Spain.

The Composition Effect: Low-Quality Jobs and an Uncertain Future

What appears clear, however, is that Spain is creating very low-level employment: elder care, hospitality, agriculture, construction, and little else. Educated Spaniards go abroad or prepare for civil service exams, while immigrants accept precarious jobs at minimum wage and share accommodation to survive. This model also has a limit: many of these jobs are automatable. Robotics and artificial intelligence could eliminate millions of repetitive positions in just a few years, leaving a large part of that workforce out of work. The short-termism of business owners, who seek cheap labor without considering productivity, could eventually take its toll. Some testimonies from the business world describe how mass hiring of workers from the same nationality can lead to a loss of quality and management problems, as peine in one company that eventually went bankrupt.

What to Expect

The future of the Spanish labor market is uncertain. Regularization has injected a mass of workers who, in theory, should increase production and consumption. But if the substitution effect is real, the pressure on wages and employment for Spaniards could intensify. The key lies in whether the economy is capable of generating enough quality employment to absorb everyone. For now, the data does not allow us to affirm that immigrants are causing Spanish job losses, but it does not rule it out either. One thing is certain: the Spanish labor market is at a crossroads, and the answer will not be comfortable.