Research Dept. News
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Monthly Report, num 354 - February 2012
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Spain: overall analysis - Labour market
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In search of an aegis
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In 2011, the number of unemployed increases by 322,286 people compared with 2010.
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In Greek mythology, the aegis is Athena's shield, used by Perseus to help him decapitate Medusa, whose head is then incorporated into the goddess's shield. The task faced by the current government is no less titanic than that of Perseus: decapitating the monster of unemployment, without comparison in Europe, and protecting the labour market so that, in future crises, the unemployment rate will not go above 20% again.
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This will be the umpteenth reform of the job market since democracy began in Spain, the last one taking place just eight months ago. The expected reform has been preceded by an announcement by the President of the government, Mariano Rajoy, anticipating that the next labour force survey (LFS) will provide an unemployment figure of 5.4 million people. This takes the unemployment rate to 23.3% so that, given the current situation, the historical maximum of 24.6% could be exceeded, reached at the start of 1994.
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For 2011 as a whole, the State Employment Service recorded an increase of 322,286 people in the number of unemployed; i.e. 7.9% more than in 2010. This annual figure hides the extensive decline suffered by the labour market in the second half of the year, when the number of unemployed rose by more than 300,558 people, more than double the figure for the same period in 2010. According to the latest figures published, in December the number of unemployed increased by 1,897 people, while the number of workers registered with Social Security fell by 18,608, a drop of 2.0% compared with the figure for the previous December.
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Various organisations, both national and supranational in scope, have recommended that the new government carry out labour reform to improve the high unemployment figures. In this respect, the government indicated that it would start to take measures early in January. However, the conversations and subsequent agreement between social agents, employers and trade unions have, for the time being, postponed the government's initiative until February.
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The main issues around which conversations revolve and on which the reform might be based are: collective bargaining, internal flexibility, conditions for hiring and firing workers, wage moderation and a last block made up of a combination of training, public employment policies and absenteeism control.
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The discussions on the current collective bargaining procedure focus on how to synchronize wage rises and activity throughout the economic cycle. Agreements lasting over several years and ultra-activity (the automatic extension of an agreement when a new one can't be reached), together with the prevalence of many different areas of negotiation, including at a sector and province level, are slowing up the process of adjusting the labour framework to the situation of the company. One example of how collective bargaining can be out of synch occurred in 2009, when the economy declined by 3.7% and the country was on the brink of deflation but real wages grew by 2.5%. That's why employers and trade unions have declared that they want to help separate company agreements from sector ones at the same time as encouraging the former.
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94% of new contracts in December are temporary.
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Another agreement reached by social agents is the increase in the minimum hours of irregular distribution from 5% to 10%. The aim is to make companies more flexible and to help labour market adjustments be carried out more readily via prices (wages) instead of quantities (dismissals).
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Simplifying the amalgam of contracts established by legislation is also on the government's agenda. The current labour framework is defined by its dual nature, with a large proportion of workers enjoying permanent contract conditions that are very different from those of temporary workers. Of note is the prevalence of temporary contracts in December, accounting for 94% of all new contracts given.
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With regard to wage moderation, employers and trade unions seem to have reached an agreement regarding wage trends over the coming years. This agreement contains a maximum wage increase of 0.5% in 2012 and 0.6% in 2013 and 2014, with a specific clause for this last year. If the rise in GDP for 2013 is between 1% and 2%, the maximum wage increase in 2014 will be 1%; if the rise in GDP in 2013 is greater than 2%, wage increases will be 1.5%. This agreement also modifies the year-end wage revision clause and establishes the following: if inflation is above 2%, wages will only be increased by the difference to this 2%; if inflation in the euro area is less than in Spain, the former will be used as a reference; if the rise in fuel and oil prices is greater than 10%, this component will be removed from the inflation calculation.
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The reform must put a stop to job losses.
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The aim of this agreement is for firms to improve their competitiveness abroad and for workers not to lose so much purchasing power. The clauses serve to separate wages from inflation in the case of sudden increases in oil prices or indirect tax hikes (hence the use of Europe's inflation rate as a reference). Apart from these agreements, and in an attempt to contain wages, the government has also frozen the official minimum wage used to establish payment concepts in many agreements, setting this at 641 euros.
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Lastly, making greater use of the available resources is also being studied for labour reform, in terms of redefining training and public employment policies to ensure these focus on those groups hardest hit by unemployment, namely the long-term unemployed, who account for 42.5% of all unemployed, and also young people, who double the unemployment rate with a rate of 45.8%.
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Other measures being considered are a greater control of absenteeism and moving public holidays to Mondays to reduce costs.
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These five areas are interrelated and form part of a whole. Like the sides of a shield, they must be perfectly balanced to achieve a legal framework that protects the rights of all workers at the same time as helping firms become more competitive.
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The monster of unemployment is rising up and it has more than five million heads. To put a stop to the constant job losses, a labour reform is required that lays the foundations to create employment that are rooted in productivity. At the same time, this reform must also protect workers to ensure that, come the next economic dilemma, we do not return to the same high levels of unemployment.
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