Spain’s labour reforms: two years on, are they working?

Esther González Santana

Two years has passed since the entry into force of Spain’s labour reform. This reform had the strategic objective to “build a new model of labour relations that would curb job losses, lay the foundations for the creation of stable and quality employment and favour competitiveness,” according to the Popular Party government of prime minister Mariano Rajoy.

The high level of unemployment, and the inability of our labour market to respond efficiently to changes in economic cycles required a new labor regulation. However, the new rules didn’t take into account structural problems in the Spanish labour market (production models, high incidence of low-skilled jobs, long-term unemployment, etc.) They focused instead on the excessive “rigidness” of the system – work rights were blamed for labour market inefficiency.

Two years on, the strategic objective is far from being realized. The new model of labour relations has not stopped the job losses, has not created stable and quality employment and competitiveness has only been achieved by reducing labor costs. It is true that job losses have slowed, but this was something that would happen sooner or later in any case. In addition, the lowering of the cost of dismissal and the easing of firing rules – both inividual and collective – has caused further destruction of permanent employment. By contrast, the few jobs that has been created are of poor quality,

Between 2011 and 2013 the unemployment rate increased by 3.18%. 673,900 permanent jobs have been destroyed. The possibility that part-time employees may work overtime has encouraged this form of atypical employment, which rose from 2,158,500 to 2,424,100 employees, ie an increase of 265,600, while full time contracts have decreased by 1,357,400.

Another concern is the decline in the participation rate from 59.94% to 59.43%. The reforms have not only increased unemployment but increased the number of people leaving the labor market (immigrants, young people extending their studies due to the inability to find employment, early retirement, or just people who leave the labor market because they believe that they will not find jobs). There has been no net job creation. The number of employed persons has decreased by 1,049,300.

The reforms saw the introduction of a new type of contract, the ‘enterpreneurs’ contract, with a one year probation period, after which the company can benefit from a number of tax incentives. As the UGT trade union noted in its report, Two Years Labor Reform, since February 2012 85.6% of these new contracts did not lead to such incentives. That is, the contract was used like a temporary contract.

With this reform, the flexicurity concept was introduced as a strategy to enhance both flexibility and security in the labour market, in line with the European Employment Strategy. Flexicurity aims to be an intermediate model between how regulated and deregulated markets work. Its model was inspired the Danish labor market that is characterized by reduced severance pay (similar to the U.S. or UK), high unemployment protection (in amount and period) and strong active policies for professional training and retraining to facilitate the rapid incorporation into the labour market of the unemployed. Thus, it aims to ensure flexibility of labour markets while offering levels of employment security levels that favour the maintenance of social cohesion.

The labour reform, and the successive changes that have taken place at the request of the Troika, has delved into the internal flexibility, allowing employers to substantially modify the working conditions unilaterally. It has also increased ‘external’ flexibility, from dismissal to wages, giving greater prominence to enterprise agreements as against sectoral agreements. However, it has not strengthened protection systems against unemployment, on the contrary, it has reduced the amount of benefits, it has not significantly strengthened mechanisms for reemployment and has lowered the budget for active labour market policies.

Citing the need for businesses to adapt to downturns quickly it has granted the employer the ability to modify working conditions unilaterally, removed the requirement for administrative authorization for collective redundancies, encouraging opt outs form collective agreements on pay, and giving priority to enterprise leve agreements. The hidden objective of these measures is to establish the individualization of labour relations in line with the neoliberal theory that considers the job market as a social institution but rather as simply a business relationship, in which the ideal situation would involve an individualized negotiation over working conditions. However, job seekers do not compete on equal terms in the labour market; it is the stronger party (the employer) who in a one-to-one negotiation has everything to gain. For this reason, the law has always had a protective nature to try to balance the forces favoring the weakest party in the employment relationship.

The labour reform has led to a deregulation of labour relations, altering the balance between employers and employees, strengthening the stronger party – the bosses. It has led to greter internal and external and wage flexibility, without extending security against unemployment. This has increased the feeling of insecurity – lower employment protection and economic crisis has led many families into desperate situations where they have no choice but to accept precarious jobs, although this means falling into a poverty trap.

Esther González Santana is a labour market expert and member of the Econonuestra collective of economists

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Translation by Revolting Europe