Can Spain Create 800,000 Jobs In Three Years?

labor market reformMadrid Financial Distric, Four Towers

Gemma Garcia Brosa via The Conversation | On October 7, Spanish Prime Minister Pedro Sanchez presented the government’s Plan for Recovery, Transformation and Resilience to access the resources of the European programme Next Generation EU.

In his statement, Sánchez announced that with the injection of resources foreseen in the plan (72 billion euros over the next three years; 59 billion of which will come via transfers from the Mechanism for Recovery and Resilience) 800,000 jobs will be created.

It is worth asking whether this target seems realistic, even more so if we recall (because that figure coincides) the unfulfilled promise made by Felipe González’s government in 1982.

Creating jobs but also making reforms

The Spanish economy is undoubtedly capable of generating 800,000 jobs within three years. We just need to bear in mind that, on average, more than 400,000 jobs have been created in Spain each year in the period 2014-2019.

However, EU resources cannot be used for any type of investment or expenditure. They must be adapted to fit in with the fundamental lines set out by the European Commission. These basically include ecological transition, the digitalization of the economy and a more inclusive and cohesive society. So it is a policy of supply rather than expansion of demand.

This implies the need to implement structural reforms which will necessarily have more medium and long term effects than immediate ones. The risk is that the intensity of the crisis triggered by the pandemic, coupled with the weakness in demand generated by an uncontrolled health situation, will translate into a loss of economic network. And this will end up having harmful effects on the potential growth of the economy.

Sustainability, digitalization and cohesion

It is difficult to quantify the impact of the Recovery Plan in terms of GDP and employment, mainly because it outlines the generic lines of the measures but does not specify them sufficiently. That said, we do know that 37% will be allocated to green investment and 33% to the digital transition.

A significant part of these resources will be allocated to infrastructure, one of the sectors of the economy with the greatest capacity to push other economic activities. So it has the greatest multiplier effect.

Moreover, the aim of these infrastructures is (amongst others):

Improve environmental sustainability.

Enhance digital transition.

Achieve more social and territorial cohesion.

These activities have greater added value and generate better quality employment than other branches of construction.

Creating 800,000 jobs implies coordination and better labour legislation

The resources provided by the EU via transfers play an essential role especially in those countries -like Spain- with lower than average levels of per capita income and high levels of public debt. Whether or not this translates into the creation of 800,000 jobs in the coming years will depend on the following factors:

The capacity to generate and manage projects to absorb those 72 billion euros in a short time. To do so, we must rely on private initiative, but also on the planning and execution capacity of the public administration. The coordination between the different levels of administrations, the reduction of red tape, the flexibility in the management, supervision and evaluation of projects, are basic aspects for achieving access to these funds. But the Spanish economy shows clear deficiencies in the optimal management of all of them. This was evident in the implementation of European funds from the last multi-annual financial framework 2014-2020. In 2019 only a third of the 56 billion euros available had been executed. Deep reform is therefore needed, along with the necessary agility to present projects in the short period of time established.

The capacity to guarantee the creation of stable and quality employment. Spain needs to carry out a significant reform in hiring methods, to put an end to the distortion caused by the dual contract system in its labour market. The extensive, and unjustified, use of temporary contracts represents the flexibility route most companies use to cope with changes in the economic cycle. This leads to a high level of job destruction in our economy and an increase in the unemployment rate in periods of recession.

These two afore-mentioned conditions are fundamental. Let us not miss this opportunity.

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The Corner
The Corner has a team of on-the-ground reporters in capital cities ranging from New York to Beijing. Their stories are edited by the teams at the Spanish magazine Consejeros (for members of companies’ boards of directors) and at the stock market news site Consenso Del Mercado (market consensus). They have worked in economics and communication for over 25 years.