A Time for Spanish Labor Reforms?

A recent article in the Economist paints a bleak outlook for Spain's employment future, ties it into the current labor system, and explains why the government has done little to tackle the issue.

Labour-market reform is perhaps the toughest of all. In some ways Spain’s labour laws are quite flexible. With almost a third of the workforce on temporary contracts, marginal workers are easy to shed by the simple expedient of not renewing contracts. That explains why Spain accounts for over half the additional unemployment within the euro area in the past year. The rest of the workforce is on Teflon-coated permanent contracts that make people difficult and expensive to sack. Companies inevitably choose staff to shed on the basis of how easy they are to fire.

Almost everyone favours reform. Such an initiative is urgently needed, with the government leading it, said a group of 95 academic economists in a letter. Mr Zapatero, however, does not share their sense of urgency. And labour-market reforms are not all that he is shying away from. The Bank of Spain recently issued a warning about a dwindling pension pot, suggesting it was time to push the retirement age above 65. Liberalisation of services provided by everyone from notaries and lawyers to veterinarians would help the recovery, said José Carlos Diez of Intermoney, a consultancy. “Whenever we have had a liberalisation plan, the economy has shown its potential for growth,” he added.

So why does Mr Zapatero not reform? Besides all the usual worries about strikes, trade unions and public support, his main problem lies in parliament. Last month his minority government lost its first parliamentary vote. Although the Socialists are only seven seats short of an absolute majority, they are struggling to find allies. Basque nationalist deputies are angry that a Socialist, Patxi Lopez, has just become their region’s premier. Catalan nationalists are similarly tired of the Socialist-led administration in their region. A fractious group of left-wing parties is not always reliable and unlikely to back tough reforms.

The article, unfortunately, leaves out a third, and increasingly more common way of working in Spain - the Autonomo, or freelance system; whereby the person, and not the company, assumes the responsibility for the payment of their social security taxes, in return for the ability to charge a higher hourly rate.

I'll write more on the different ways of working in Spain later, but the basic problem with the Autonomo system is that it is a flat amount of 320 euros to be paid each month, whether you earn a thousand or a million; and during times of no work, there are no unemployment benefits and the pension less than a normal person's.  While not an economist, it seems to me a fairer system would be to make it a percentage linked to income, and include benefits from this money for those with seasonal professions to minimize the effect on the current budget, offering an incentive to the millions who don't pay to join.

And yet, when I read the Spanish newspapers, I see no mention of this being proposed, or truth be told, any government initiative to stop the downward economic trend.  I hear only words and empty promises about how Spain will get better.  So once again, I ask; ¿Dónde está la rabia?