Published on Monday, January 3, 2022

Spain | Pros and cons of the labor reform

The new labor reform was achieved with a social consensus. It clears up uncertainties, makes several improvements and avoids going back on key progress made in the last decade. But it is not ambitious enough to solve the structural problems of the Spanish labor market.

Key points

  • Key points:
  • For decades, the inefficient and unfair functioning of the labor market has been one of Spain's weaknesses. High unemployment explains about half of the gap with Europe's most advanced economies in terms of GDP per working-age person.
  • These labor market issues are not new but structural, so it is not surprising that their correction has been one of the specific recommendations of the European Commission to Spain for years, and has been made a condition for access to European NGEU funds.
  • In the recent consensus reached to reform the labor market, many of the changes of the 2010 and 2012 labor reforms that in the last two years were threatened with reversal have been kept in place. For example, the firing costs of permanent contracts were not increased, nor were the grounds of objective dismissal changed.
  • Contracts have been streamlined and rules around fixed-term contracts have been relaxed; hires and subcontracts are maintained, and their legal regime is clarified; hybrid training and training contracts are encouraged to enhance the employability of young people.
  • Beyond the final wording of the statute after the parliamentary process, the key issues will be how the reform is implemented, how efficiently the public sector executes it, how the judicial system limits it, and how the private sector responds to all these changes. The assessment of its outcomes in the coming years will clear up the doubts that now exist about the scope and effectiveness of the current labor reform.

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