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Job losses, labour reform and future prospects
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The number of unemployed reaches 5.2 million, and the unemployment rate 22.8%.
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It's now official. The National Accounts system for the last quarter of 2011 revealed that the economy shrank by 0.3% in the fourth quarter compared with the third. This drop in activity resulted in a 3.3% year-on-year fall in employment
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The deterioration of the job market was also reflected in the labour force survey (LFS) for the fourth quarter. Over the last three months of the year, the number of unemployed rose by 295,300 people, 12.3% more than in the fourth quarter of 2010. Throughout 2011, 577,000 people joined the long list of the unemployed, which now totals 5,273,600. This figure, together with the slight fall in the labour force, has led the unemployment rate to reach 22.85%, a figure not seen since 1994. And if we take into account the methodological changes introduced in how the LFS is produced, the unemployment rate is probably the highest it has ever been since records began.
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The number of salaried workers with permanent contracts falls 4 times more than that of temporary workers.
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The start of 2012 hasn't brought any good news either. In January the State Employment Service posted a 4.0% monthly increase in the number of unemployed, which means that 177,470 more people were without a job than in December. Although this figure falls to 42,126 once seasonally adjusted, the year-on-year rate of change now stands at 8.7%, a figure only behind the one recorded in 2009 and 2010.
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Other indicators of how the job market is faring show the fragile state of employment. The number of people registered as employed with Social Security fell by 283,684 in the first month of the year, a drop only exceeded in 2009. On the other hand, the number of contracts recorded in January was down 6.9% in annual terms. Throughout 2011 the number of employees with permanent contracts decreased 4 times more than that of temporary contracts
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Given this situation, the government decided to pass a decree law to implement the expected labour reform. The aim of this legislative change is to eliminate rigidity and the dual nature of the labour market. To this end, the government is creating a new training contract, is providing mechanisms to improve the internal flexibility of firms and is modifying the collective bargaining framework.
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To boost employment, the reform provides a contract for training and apprenticeship, exclusively for people under 30. Moreover, via a permanent contract to support entrepreneurs, applicable only to the self-employed and SMEs with fewer than 50 workers, an allowance of up to 3,600 euros is paid for hiring unemployed people from this group. In the case of the long-term unemployed aged 45 or older, this allowance can reach 4,500 euros. This aspect of the reform aims to alleviate unemployment among the young and long-term unemployed, whose unemployment rates double that of the economy as a whole.
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The reform makes the labour market more flexible and aims to boost employment.
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With the same idea of creating jobs, the reform also authorises temporary employment agencies to act as private recruitment agencies and limit successive fixed-term contracts to a maximum of 2 years. However, we're unlikely to see the slightest hint of jobs being created until the economy starts to grow again.
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With regard to the dual nature of the labour market, the government has chosen to reduce the cost of dismissal as a means of making permanent employment more attractive. To this end, it has withdrawn the fast-track dismissal procedure and has reduced compensation for wrongful dismissal from 45 days per year worked to 33, applicable to a maximum of 24 monthly payments instead of the previous 42. Moreover, back pay has been eliminated in the case that the court rules dismissal has been wrongful and the worker is not readmitted. To ensure the cost of dismissal is reduced, the economic grounds for redundancies have been clarified (current or predicted losses or a reduction in income or sales over three quarters), administrative authorisation has been removed prior to redundancy plans (ERE in Spanish) and dismissal on economic grounds has been introduced for public corporations. The aim of these measures is to facilitate the use of fair dismissal, whose compensation is 20 days per year worked with a maximum of 12 monthly payments.
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The decree law makes it cheaper to dismiss employees.
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Another objective of the reform is to provide mechanisms to make companies more flexible internally, allowing them to adjust their activity via prices rather than dismissals. Once the decree law has been enacted, the company's agreement is allowed to prevail when there are current or predicted losses or if the level of income or sales falls over two consecutive quarters
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Ultra-activity is also limited (the automatic extension of company agreements when workers and owners cannot reach a decision), up to a maximum of two years. This new flexibility provided to companies should help them make adjustments via wages or other working conditions instead of job losses.
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The labour reform therefore opens up a wide range of possibilities. But it is difficult to evaluate its effect. This will partly depend on the courts' interpretation of the new conditions established for breaking the collective agreement or for using dismissal on objective grounds. And it will also partly depend on the desire of workers and owners to come to an understanding in tough times.
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