Spain’s labour reforms are still not working 

The Spanish economy, no sooner declared one of the bright spots in the Eurozone economy, is again struggling.

The Eurozone’s fourth largest economy grew at its fastest pace in six years in the second quarter (the third consecutive quarter of growth) but this week the Bank of Spain sounded pessimistic, pointing to a slow down in private spending growth.

For sure, Spain like other European countries is suffering from US-led efforts to restart the Cold War via sanctions against with Russia, to which the country has responded in kind. But this only compounds the underlying deflationary policies pursued from Berlin and Brussels.

One of these is the deregulatory labour reforms endlessly urged on numerous countries reportedly living beyond their means with the declared objective of boosting growth and employment.

It turns out, though that rather than creating any new jobs PM Mariano Rajoy’s 2012 reform in Spain has just shared the work around.

According to a new study, the labour market has become what economists call ‘dynamic’, that is, people are leaving and finding new jobs quicker, supposedly a good idea imported from America. The study by HR consultants Meta4 and the IESE business school found that the number of people losing their jobs because their contracts have ended has doubled to 40% of the total. But the quality of, and wages paid by the new jobs are often inferior.

There’s been a big growth in temporary contracts, including those lasting just one month. Thanks also to the fact that many of the new jobs also taken by younger recruits replacing older retiring workers, wages have also been cut.

The report – based on data collected from the first quarter 2010 to the second quarter of 2014 among 150,000 employees of 796 companies from 21 sectors – confirms what unions have been saying for two years now. If you make people fearful of their future by encouraging the creation of precarious (or ‘shit’) jobs, as the Spanish say, and create a living standards crisis by making it easier for companies to slash wages, spending will fall. And so it will not aid but hurt the economy.

The Popular Party Government doesn’t seem to have understood, however. This week it confirmed that it was freezing public sector workers’ wages for the fifth year running.