Job market in Spain set for labour law shake-up

Further reforms could be on the way for Spain's labour market

Spanish ministers have revealed that the government is in the process of introducing yet more labour reform laws in the ongoing shake-up of the country’s complicated employment system.

Spain’s current employment law is a dense patchwork of processes and systems, with workers and employers able to choose from 41 different types of contracts…

The process, which was intended to make employing staff more flexible, simply adds a layer of confusion and insecurity, particularly for smaller companies nervous about hiring staff on full-time contracts.

The plans follow growing pressure from the International Monetary Fund and repeated demands from Spanish employers to ring in the changes and deepen the reforms that were implemented in 2012.

Those earlier reforms did not go far enough, analysts argue, and have done little to bring an end to Spain’s two-tier labour market, whereby workers on permanent contracts are granted strong protection, leaving those on temporary contracts in a vulnerable situation.

Spanish ministers have responded by saying that they hope to reduce the number of employment contracts to just five, with adjustments made to the system of subsidies, too. “This is a problem that we will solve very soon,” Spain’s employment minister, Fátima Báñez, said in Parliament last week during a review of last year’s labour market reforms.

Those reforms were introduced to help drag Spain out of recession, and were an attempt to strengthen the public sector by making it less expensive for companies to fire workers and extricate themselves from collective wage agreements and strike deals.

Báñez remarked that the measures had made Spanish companies more competitive and would help create jobs. The minister also pointed to Spain’s robust export market as evidence that the reforms had begun to work. “We are not well,” she said, “but we are much better than we were last year.”

A professor of economics at Madrid’s Carlos III University, Juan José Dolado, has told the Financial Times that a proposed simplification of labour laws could reduce the legal uncertainty that bedevils the current system, but warned that more must be done to encourage companies to hire permanent rather than temporary workers.

“Of course it is easier if you only have to deal with five different contracts rather than with 41,” the professor said. “But nothing will happen as long as you don’t cut the gap between severance pay under the temporary contracts and permanent contracts.”

Whether Spain’s ministers have the appetite to take on that particular challenge remains to be seen.