Labour reforms in Spain deliver jobs but at a cost

Spain’s labour 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 labour 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.

About ten per cent of open-ended contracts in Spain now allow for dismissal without justification in the first year.

But half of these contracts are terminated after the one year trial 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 Madrid, said he knows he will have to complete at least four shortterm contracts of three months each before he is offered a permanent contract.

“An open-ended contract is not worth the paper it is written on. If a 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.

However, Spain’s jobless rate fell from 27.2 per cent in the first quarter of 2013 to 18.7 per cent during the first quarter of this year. — AFP