Maybe second only to Greece, Spain is Europe’s most notorious instance of a broken labour market. In Spain, as in many other failing EU countries, “structural reform” means “labour-market reform” — and “labour-market reform” is a euphemism for confronting the unions.
Clive Crook, Bloomberg View
Virtually anywhere in the world industrial relations is a contentious issue. Employees want long-term certainty about employment and wages so that they can confidently plan and live their lives. Employers seek flexibility in how they use their workforce so that they can respond to changing business and economic conditions. Some countries do relatively well in achieving a balance. In other places, the system is woefully lopsided.
Take Spain as a contemporary example. As Clive Crook writes, its two-tiered system of ‘permanent’ and ‘temporary’ employees was a piecemeal measure designed to give wiggle room to companies. But bargaining arrangements are collective across industries and provinces — not specific to individual firms. Permanent workers, enjoying a high range of privileges, are virtually unsackable. Temporary workers, by contrast, are dropped at the first sign of trouble. Unsurprisingly then, in the midst of an economic crisis, unemployment is surging in Spain — it now exceeds 22 per cent. Most of those on the dole queue were temporary workers, who are generally younger workers too (having entered the system after labour reforms) Why would an employer choose to lock in a young worker on a permanent contract when they have potentially decades of employment ahead of them, with all the obligations attached to that? Meanwhile, companies are unable to change the legally-enforceable benefits of the permanent workforce. So, employment falls off a cliff, but wages barely budge. There are a range of other perverse effects, as Crook notes, but the fundamental problem is that inflexibility means that employers ultimately face far higher costs than many of their foreign competitors. Collectively, this limits Spain’s economic growth prospects, which also impairs its ability to respond to the debt crisis it now faces.
Hence, labour market reforms are being advocated as an important step to unlocking growth potential in Spain (as well as Greece and other sclerotic European economies). Crook notes that the battles the Spanish government now faces have been fought and won their counterparts elsewhere throughout the world. Spain has previously squibbed on serious reform, and will again face heavy union resistance to change. But as Crook also argues, the current crisis — and Spain’s unemployment rate, which dwarfs comparable statistic in other Eurozone members — also highlights just how dysfunctional the current system. This isn’t a battle between employers and employees. It’s about the fundamental inequity between (permanent) workers and the unemployed.
