When it comes to reforms, Spain’s labour market is a must


By Juan Pedro Marín Arrese, in Madrid | Use of emergency doors being forbidden by Germany, except in cases of force majeure, trouble-ridden Southern Europe is to expect a painful and slow real adjustment. This process will allow its current competitive gap to phase out little by little. In other words, less pay for the same job. Refusal by workers to grasp the inner benefits derived from lower wages tackling imbalances inevitably turns into a heavy toll in terms of unemployment.

Spain stands as the best example of this therapy. With construction activity in shambles, plus a sharp decline in services, nearly one quarter of total manpower is on the dole. And prospects to snatch a job look indeed very dim.

Rigidities in industrial relations have been blamed for this massive waste of resources. For all the flexibility introduced in the recent bargaining framework agreed between social partners, little room is still provided to accommodate conditions to firm level. It is by no means the only Achilles’ heel in labour market. Adapting staff to foreseeable needs is simply impossible. Employers have to demonstrate, overcoming successive administrative and judiciary hurdles, they suffer substantive losses or face a much bleak perspective.

No wonder they turn into capital intensive models, even if unemployment offices are fully loaded. From 1995 onwards the only way out from total collapse has rested on junk temporary labour contracts escaping from all these rigidities. As a result, more than 30% of total workforce enjoys a job expectancy limited to a few weeks. Can anyone indulge in life planning under such circumstances?

Shaking up labour market rules with proven efficiency in cutting down jobs, stands as the main structural pending reform in Spain. Devolution of collective bargaining to meet individual enterprises needs should stand as a cornerstone in this reshuffle, even if it encroaches on well entrenched privileges both trade unions and employers organisation enjoy. Introducing more flexible hiring and firing rules would much contribute to job creation, even if is difficult to imagine the Spanish government going down that road too far. If only to provide a helping hand to regional leaders engaged in a bitterly fought attempt to oust the Socialist Party from its Andalusia stronghold.

Even so, one can bet Spain’s government will not allow itself to deceive markets or indeed Germany. And that it will refrain from revisiting the status for the ones currently employed. Jobs meanwhile will continue to be lost until growth picks up in future, a tense no one is able to foretell when it could be conjugated again with some hints of certainty.

Juan Pedro Marín Arrese is an economist.

About the Author

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.

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