Spain’s Economic Panacea (or not)

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Unsurprisingly, the talks between the government, business and trade unions ended early last Thursday morning without an agreement about labour market reform. Instead, Zapatero is going to issue it by decree.

For months now, murmurs of cutting the cost of firing people has been on the agenda of many newspapers and the murmurs swelled to a huge clamour during those negotiations. Making it cheaper to fire people is the great panacea for Spain’s economic problems now that the deficit is being tackled by government cost-cutting. Or so it would seem. Such a measure defies all sensible logic. Nearly everyone agrees that Spain’s main economic problem is the astronomical unemployment rate, which is at double the EU average, and that it is going to take a long time to create jobs for those 4 million people. How is making it cheaper to fire people going to help? If you look at how the unemployment has risen during the crisis, it becomes clear that the cost of firing people has not been a problem for many Spanish businesses.

The problem for many young people is that they struggle to get more than a temporary contract, unless they sit the examinations for a post in the public administration. They drift from job to job without much hope for their long term future and this undoubtedly fuels the other spectre which haunts the Spanish economy: productivity. If you’re given a temporary contract for a few months and not much hope of being rewarded for your work (this goes for the graduate contracts too –it’s easier for the businesses to continuously search for fresh meat than offer someone a long term contract), are you really going to be the most productive worker? Unfortunately Spanish businesses seem to think that precarious, temporary job contracts are better than offering someone a long term deal. It lines their pockets in the short term, but is detrimental to their long term growth.

So instead of talking about cheapening the process of firing people, let’s talk about making it easier to contract people, and penalising businesses for their overuse of temporary contracts (which the business representatives rejected during negotiations.) We can only wait and see whether this will be written into the decree on labour reform.

For more about young people and the economy, click here.

One response to “Spain’s Economic Panacea (or not)

  1. Cheaper firing costs = cheaper hiring costs. So much has been written about insiders and outsiders in the labour markets of France, Spain etc. Better protection for short term contracts – YES but less protection for the insiders.
    Then Spain might switch from making things the chinese can make cheaper to using its creativity and employing a lot more young people.

    It wont happen overnight but in the long run it will be worth it.

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