Gayle Allard. Professor. IE Business School
16 May 2012
Spain’s senseless labor market system means that employers do not take on new workers even if they need to, and employees are resigned to doing more for less for fear of losing their job.
According to data supplied by the Spain’s National Institute for Statistics, Spanish firms could have created 72,000 jobs with the overtime they are currently not paying their employees. Some experts believe that together with the work being paid for in black money, companies could have created almost a million jobs. So why don’t they?
There is a toxic combination of factors that prevent this from happening in Spain. “Poisonous” unemployment levels and an inflexible labor market. Employment levels of 23% are effectively poisoning labor relations. Do I have to work more hours than I am paid for? “Yes I do. There are some 800 candidates standing in line for my job, and I can’t afford to lose it, so I’ll work even though I don’t think it is fair and I am not being paid for it.” Will I accept work as an unpaid intern even though I have a degree? “Yes, because if I don’t, I won’t get any experience, and what’s more they will easily find someone else to do it, there are thousands of degree holders out there who would take my place at any price, at zero cost if necessary”. Do I have to accept work on the black market, where work is not only less secure, but also illegal? “Yes, because if I don’t, someone else will.”
Moreover, laying off workers has hitherto been so costly that firms prefer to do just about anything rather than hire new workers. The first escape valve they use comes in the form of temporary work, which stands at higher levels in Spain than any other developed country. The next comprises making the workforce work more, thereby avoiding the risk of taking on more people. It is a complete contradiction in terms, but that’s the way it goes. People are working longer hours because it is difficult to make someone redundant and because of the high level of unemployment here in Spain.
Recently, however, a giant step has been taken toward changing this situation. The labor reform put in place by the government a few weeks ago is the most important ever to have been approved in Spain. Moreover, it is the first time in Spain, and almost the first in Europe, that such a reform does not affect exclusively temporary contracts: it actually reduces the maximum time a temporary worker can work, while reducing the cost of laying off a fixed contract worker. Hence, it is fair and tries to close that enormous gap that exists in Spain between fixed contract workers, who are better paid and protected from the ups and downs of the economy, and workers on temporary contracts, who have always born the brunt of restructuring processes.
Such deep-rooted differences won’t be eradicated overnight. Unemployment and unpaid overtime are just two consequences of this imbalance. It will take time for changes to happen, but the labor reform is a major step toward the creation of a Spain where these paradoxes are not the norm.