Sunday, June 6, 2010

Labour reform: fiddling while Spain burns

With 4 million unemployed, the economy practically paralysed and the public finances in crisis, something has to be done. Even if inside Spain there does not seem to be a clamour for radical action on the economy (people still in employment too comfy with the status quo and fearful of change?), the EU and the IMF are demanding reform. First came the austerity package (see post Spain's economic crisis turns nasty) and now the government is pushing through labour market reforms.

They are causing a lot of fuss. The unions are threatening a general strike over the reforms but the government has vowed to press ahead anyway (Zapatero to approve reforms with or without agreement) . They have been negotiating changes to a system which clearly does not work for almost two years now. Even with 44% of young people out of work and numerous others working in the black economy, the unions are unhappy because redundancy pay rights are being reduced.

But even if the reforms get pushed through will they make much difference? Looking at the fine print and they are not exactly earth-shattering - redundancy pay down from 45 days pay for every year worked to 33 days. Even that small reduction is only for new contracts not existing workers.

It will still be very expensive to hire and fire workers which is why so many employers needing staff get them unofficially - "sin contrato" - although they need to be wary as one of the new measures is to increase the number of labour inspections specifically to pick up such illegal practices.

The other measures in the package are mainly shuffling subsidies around and actually increasing the burden on employers e.g. by making it harder to offer temporary contracts and extending the requirement to pay redundancy packages. Full details here - Employing Staff in Spain

If Spain was serious about tackling the horrendous employment situation they need a dramatic cut in social security payments by employers and the self-employed, right across the board. Perhaps they could pay for it with an end to the 3 billion € a year they spend on subsidies for encouraging employment which clearly do not work.


  1. If they scrapped the stupid fixed rate social security payments the shortfall would, as well, come from all the legitimate contracts that would suddenly pop up when employers and autonomos are not faced with ridiculous flat rate social security payments. It is almost like they want to discourage business initiative.

  2. Here, here. I know hundreds of "self employed" people here who would love to be legitimate but can't risk being committed to 250 euros a month regardless of earnings!


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