News ID: 193249
Published: 0956 GMT May 22, 2017

Spain’s labor reform delivers jobs but at a cost

Spain’s labor reform delivers jobs but at a cost

Spain’s labor market reform has helped bring down sky-high unemployment but critics complain the bulk of the jobs it created offer lower salaries and less security.

Without the 2012 law “we would not have dared to expand so quickly,” said Juan Martinez, the manager of a Kia car dealership in northern Madrid.

The reform drastically reduced the amount of compensation that must be paid when workers are let go and allows for collective dismissals, even when a firm is not facing economic difficulties.

It also created a new open-ended contract, which can be used by small- and medium-sized businesses, which allows dismissals without justification during the first year of employment.

Prime Minister Mariano Rajoy’s conservative government adopted the reform in 2012 after 2.6 million jobs had been lost following the 2008 global credit crisis, which hastened a correction already underway in Spain’s key property sector.

It has been held up as an example of 'flexicurity' — a cooperative approach to labor relations pioneered by Denmark in which employees accept a degree of flexibility in working arrangements — to be followed in France and other European nations.

You have less obligations as a business and that allows you to have less worries about the future than before,” said Martinez.

A third of jobs in the car sales sector disappeared after 2008. Spain’s car dealers association credits the reform with a recovery in employment in the sector.

When Martinez opened his Kia dealership in 2014, he recruited a total of around 30 people, roughly a third under the new open-ended contract, which allows for dismissal without justification during the first year.

The workers were eventually given permanent contracts as car sales recovered along with the overall economy. Spain’s economy, the euro zone’s fourth largest, expanded by 3.2 percent last year, one of the fastest rates in Europe.

About 10 percent of open-ended contracts in Spain now allow for dismissal without justification in the first year.

Unlike what happened at Martinez’s dealership, half of these contracts are terminated after the one-year trial period, according to a report by Spain’s second-largest union, the UGT.

This more flexible contract has not led to the disappearance of temporary contracts, which continue to represent over one-fourth of all contracts, a record in the 28-nation EU.

   
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