Spain’s labor reform delivers job but at a cost
Spain’s labor market reform has helped bring down sky-high unemployment but critics complain the bulk of the jobs it created offer lower salaries and less security. Without the 2012 law “we would not have dared to expand so quickly,” said Juan Martinez, the manager of a Kia car dealership in northern Madrid.
The reform drastically reduced the amount of compensation that must be paid when workers are let go and allows for collective dismissals, even when a firm is not facing economic difficulties. It also created a new open-ended contract which can be used by small and medium-sized businesses which allows dismissals without justification during the first year of employment.
Prime Minister Mariano Rajoy’s conservative government adopted the reform in 2012 after 2.6 million jobs had been lost following the 2008 global credit crisis, which hastened a correction already underway in Spain’s key property sector. It has been held up as an example of “flexicurity” — a cooperative approach to labor relations pioneered by Denmark in which employees accept a degree of flexibility in working arrangements-to be followed in France and other European nations.
“You have less obligations as a business and that allows you to have less worries about the future than before,” said Martinez. A third of jobs in the car sales sector disappeared after 2008. Spain’s car dealers association credits the reform with a recovery in employment in the sector.
When Martinez opened his Kia dealership in 2014, he hired several former colleagues like him who had bet let go from car dealerships during the crisis.
He recruited a total of around 30 people, roughly a third under the new open-ended contract which allows for dismissal without justification during the first year.
The workers were eventually given permanent contracts as car sales recovered along with the overall economy. Spain’s economy, the eurozone’s fourth largest, expanded by 3.2 percent last year, one of the fastest rates in Europe.
‘Fire at less cost’
About ten percent of open-ended contracts in Spain now allow for dismissal without justification in the first year. Unlike what happened at Martinez’s dealership, half of these contracts are terminated after the one year trail period, according to a report by Spain’s second largest union, the UGT.
This more flexible contract has not led to the disappearance of temporary contracts, which continue to represent over one fourth of all contracts, a record in the 28-nation European Union.
Francisco Alvarez, a 42-year-old salesman at a Peugeot dealership in northern Madrid, said he knows he will have to complete at least four short-term contracts of three months each before he will be offered a permanent contract. “An open-ended contract is not worth the paper it is written on. If the company wants to let you go, they will fire you at less cost now,” he said.
Spain’s left-wing opposition parties have vowed to scrap the reform, which the government credits for a sharp drop in unemployment. Spain’s jobless rate fell from a record 27.2 percent during the first quarter of 2013 to 18.7 percent during the first quarter of this year.
Work more, earn less
But while the reform was meant to provide “flexicurity”, the government has only focused on “flexibility” and has forgotten about the “security” portion, said Manuel Lago, an economist at Spain’s largest trade union, the CCOO. Denmark sought to attenuate the problems of globalization by offering employers greater flexibility to let workers go but also gave workers greater security in the form of easy access to unemployment benefits and retraining programs.
But the Spanish government has “made access to unemployment benefits more difficult and reduced the amount that is paid” as part of austerity measures, said Lago. State spending on unemployment benefits has fallen from 33 billion euros ($36.7 billion) in 2010 to 19 billion euros last year, a drop that is only due in part to the decline in joblessness, he added. Unions argue the reform has also caused salaries to fall, by favoring negotiations over pay within individual firms instead of collective agreements covering an entire sector. — AFP