Controversy over government's unemployment benefit reform

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In May 2002, following the failure of negotiations with the social partners on the issue, the Spanish government approved a Royal Decree reforming unemployment benefit and public employment services. The aim of the measures is to mobilise the supply side of the labour market, in line with the European employment strategy. The reforms include making receipt of unemployment benefit subject to various job-seeking conditions. Trade unions responded by calling a general strike on 20 June.

The period from 11 April to late May 2002 was one of intense bargaining in Spain over the reform of unemployment benefit (ES0206204N). However, the Ministry of Labour and the social partners - the Trade Union Confederation of Workers' Commissions (Comisiones Obreras, CC.OO), the General Workers' Union (Unión General de Trabajadores, UGT), the Spanish Confederation of Employers' Organisations (Confederación Española de Organizaciones Empresariales, CEOE) and the Spanish Confederation of Small and Medium-Sized Enterprises (Confederación Española de la Pequeña y Mediana Empresa, CEPYME) - failed to reach an agreement. The issues at question were reform of the system of unemployment insurance and mobilisation of the supply side of the labour market, in accordance with the European employment strategy, based on the employment chapter of the European Community Treaty (EU9711168F), and the Employment Guidelines produced annually by the European Commission and Council of Ministers.

In view of the failure of the negotiations, the conservative People's Party (Partido Popular, PP) government decided - to widespread surprise - to take unilateral measures through Royal Decree-Law 5/2002, of 24 May 2002, on 'urgent measures to reform the unemployment protection system and improve employability'. The aim of the reform of unemployment benefit is to introduce mechanisms so that 'the unemployed can find work in the shortest time possible', in accordance with the conclusions of the March 2002 European Council meeting in Barcelona (EU0203205F).

Government measures

The main measures in the Royal Decree on unemployment benefit approved by the government are aimed at establishing individual responsibility among unemployed people and an obligation actively to seek employment. This obligation is related to geographic mobility, training, the acceptance of a 'suitable job offer' and penalties for refusal. The conditions for payment of 'interim wages' (ie the wages of dismissed workers while awaiting the outcome of an unfair dismissal case) have also been modified, which is perhaps one of the most important aspects because dismissed worker will now be considered as unemployed from the first day (even if their dismissal is later found to be unfair by the courts). Another important aspect is the abolition of the Rural Employment Plan (Plan de Empleo Rural, PER), which particularly affects Andalusia and Extremadura (regions which, incidentally, tend to vote for the opposition Socialist Party [Partido Socialista Obrero Español, PSOE]).

In more detail, the government wishes to mobilise the supply side of the labour market through the following measures:

1. written commitment. In order to receive unemployment benefit, unemployed people must make a written commitment to accept all proposals that help them to find jobs;

2. definition of a suitable job. Unemployed people must accept the offer of a 'suitable job' (empleo adecuado) if they are not to jeopardise their unemployment benefit. A suitable job is considered to be one which is the same as any job previously performed by the applicant for a period of six to 12 months at any time in their working life. If unemployed people fail to find such a job within 12 months, they must accept another job after attending a training course. Social security contributions will be reduced for unemployed people who accept a job in a lower professional category or on lower wages;

3. geographical mobility. Unemployed people must accept a job that is less than 30 kilometres from their home or requires a return journey of less than two hours, providing that the journey does not cost more than 20% of the wages. The duration and working time of the contract offered is not taken into account. This was perhaps one of the most debated points in the bargaining process. The government's initial draft laid down a distance of 50 kilometres and a journey of three hours. These figures were later lowered in order to seek a compromise between the parties;

4. penalties. The Royal Decree provides for penalties for unemployed people who refuse a job offer. The penalties range from the loss of one month's benefit to the total withdrawal of benefit;

5. incompatibilities. For the first time, limitations on receiving unemployment benefit have been introduced, so that unemployed people who receive income from assets and investments will not receive unemployment benefit. Unemployment benefit is thus now 'incompatible' with other income;

6. women. There will be a one-year reduction of 100% in social security contributions in respect of women returning to employment in the two years following childbirth;

7. compatibility of work and benefit. Persons over the age of 52 may receive unemployment benefit and work at the same time. They will receive 50% of normal benefit and the employer will supplement their wages;

8. active integration income. The existing 'integration contract' scheme, which offers support to unemployed people in becoming integrated into the labour market, is generalised to all persons over the age of 45 years who have been unemployed for a month. It is also applicable to people with disabilities, returning emigrants and women who have been victims of domestic violence. The employer must pay the unemployment insurance contributions of workers employed under the scheme. On this point the government made a concession in relation to its original document, in which workers receiving integration income were not entitled to unemployment benefit;

9. capitalisation of unemployment benefit. Workers who are dismissed may receive their whole unemployment benefit entitlement in a lump sum if they join a cooperative or 'workers' limited company', or become self-employed. They must use the lump sum for the business, or may receive it as a quarterly subsidy to their social security contributions;

10. interim wages (salarios de tramitación). Dismissed workers are now considered as being unemployed from the first day. Companies will no longer have to pay the wages of workers who have been dismissed and take the case to court. Instead, the National Institute of Employment (Instituto Nacional de Empleo, INEM) will pay unemployment benefit to the workers concerned. In the event of reinstatement following a finding of unfair or unjustified dismissal, the worker will be entitled to receive the unpaid wages. On this point, the government amended its original draft, which did not provide for back-payment of the interim wage on reinstatement;

11. abolition of the Rural Employment Plan (PER). The PER, which particularly affects Andalusia and Extremadura, will be gradually phased out (ES9909252F). In six years' time, agricultural unemployment benefit will be fully generalised to all regions (autonomous communities), though with major reductions. The employers must pay the contributions gradually over a period of six years; and

12. reform of Basic Employment Law. The Royal Decree amends the 1980 Basic Employment Law (Ley Básica de Empleo), which governs public employment services, in order to: end the monopoly of INEM in labour market mediation; transfer active labour market policies and mediation to regional governments; and apply the European dimension of employment policies and the use of European funds for active employment policies. The Decree states that the Basic Employment Law will be used as a basis for defining employment policy with the aim of full employment. It also defines the 'national employment system', the competences of the national and regional public employment services, unemployment benefit and active policies. The decree also provides for the modernisation of the INEM's public employment service and of regional services.

According to the People's Party, the Royal Decree will also be presented as a draft bill to allow debate in parliament. It was therefore possible to present and negotiate amendments from 13 June 2002, when the draft bill began to be processed prior to being put before the Senate. The conversion of the decree into a draft bill will not be completed until after the summer. However, the main opposition party, PSOE, is in favour of the complete withdrawal of the reform.

The reform was presented at an extraordinary meeting of the Sectoral Conference of Labour Affairs (Conferencia Sectorial de Asuntos Laborales), which brings together central and regional government, in order to determine the position of the regions (autonomous communities) on the reform of unemployment benefit and the degree of responsibility that will be accepted by their employment services. The representatives of the regions governed by the PSOE walked out of the meeting due to their disagreement with the objectives and economic rationale of the reform.

Unions call general strike

The CC.OO and UGT trade union confederations issued a statement on 7 May, announcing their intention to call a general strike on 20 June, coinciding with the European Council summit in Seville. The unions feel that the reform involves a profound change in unemployment benefit, accompanied by a substantial modification of the rules on dismissal. The unions state that the government showed no willingness to bargain, given the form in which the reform was presented and the narrow margins of negotiation that it imposed. The government is determined to push forward these measures, with or without agreement, claim the unions, pointing to a text presented to them on 17 April as a practically closed document, with hardly any opportunity for bargaining.

According to the unions, the provisional document presented by the Ministry of Labour and the subsequent Royal Decree involve a new definition of unemployment protection: 'the legal nature of unemployment protection has been changed. It is no longer recognised as a system of economic protection, is excluded from the social security system and simply forms part of the active [labour market] policies' (in the words of a letter from CC.OO and UGT to the Prime Minister, sent on 8 May). Therefore, the unions claim, benefit is no longer considered as a right that workers have earned because of their previous contributions, and unemployed people are blamed for their situation.

Unions' arguments against the reform

The trade unions' arguments against the unemployment reform have been developed in a document, commenting point by point on each of the measures in the original text presented by the Ministry of Labour and in the Royal Decree-Law. Ten points raised by the unions deserve special consideration, as follows

1. The right to any type of unemployment benefit, whether contributory or non-contributory, and to active integration income, is now dependent on a 'written commitment' by the unemployed person. This measure, it is claimed, involves subjectively identifying as being 'to blame' people who become unemployed and 'enter' the benefit system. The unions claim that it is unlawful for benefit to be dependent on signing such a commitment because unemployment benefit is paid out of the contributions of workers, and is thus a right that they can demand. On this point, the unions are appealing to the Ombudsman (Defensor del Pueblo) and to constitutional rights.

2. The concept of a 'suitable job' is left to the discretion of the public employment service, which may give rise to disputes. The 'geographic mobility' rules are seen as arbitrary, especially if the same conditions are applied in all areas, because infrastructures and the availability of public services are not the same in all areas. Further, the geographical mobility rules do not take into account the responsibilities and family situation of the persons affected. Therefore, the unions are calling for other solutions in this area, such as better personalised attention by the INEM employment service, a programme of tutorship and integration measures, and a greater capacity on the part of INEM to mediate in the labour market and find job offers. One of INEM's main problems is its poor ability to match labour market supply and demand. Companies tend to recruit their staff through advertisements in the press, networks of contacts and private agencies.

3. The decree establishes new 'incomes incompatibles with benefit'- ie types of income that disqualify unemployed people from receiving benefit. Compensation for the termination of an employment contract (whatever the instalment arrangements, form of payment or type) is now considered as such income for the purposes of unemployment benefit, as are capital gains and income from assets. This increase in the number of items considered as income will automatically restrict entitlement to benefit (affecting particularly persons over the age of 52 taking early retirement, and those affected by redundancy procedures), state the unions. The contradiction is that such compensation is considered as income for the purposes of entitlement to benefit but not for tax purposes.

4. The decree states that 'periodical' 'fixed-discontinuous' (fijos discontinuos) employment contracts - ie contracts which are open-ended but involve work only at particular times of the year - will not entail entitlement to unemployment benefit. In other words, persons who work at certain times of the year - eg in hotels and catering, tourist services, education and certain activities of the public administration - will not be entitled to unemployment benefit because they will be considered as permanent part-time workers. Only those who do not perform activities that are repeated on certain dates will be considered as being on discontinuous contracts with entitlement to benefit. This measure affects between 200,000 and 400,000 workers in certain tourist regions, such as the Balearic Islands, Andalusia and the Canary Islands, who will now automatically be considered as part-time workers. On this point there has already been a reaction from the employers' associations of the tourist sector, who feel that allowing periods of employment during the tourist season and entitlement to unemployment benefit during the low season was a specific form of regulation geared to the economy of certain regions. The trade unions consider that this point will lead to industrial conflict.

5. The decree also plans to 'make benefit compatible with pay', so people over the age of 52 can continue to receive unemployment benefit while they work. The unions' criticism is that making benefit compatible with low wages involves in practice a transfer of income to companies, and creates underemployment.

6. The 'capitalisation of unemployment benefit' for recipients who form a cooperative or workers' limited company, or who become self-employed, replaces the single payment of benefit with a subsidy of monthly social security payments corresponding to the amount of benefit. The unions and organisations of cooperatives consider this measure to be negative; they prefer the payment of benefit at the time of starting the new activity. However, the unions also admit that this new form of capitalisation is a better guarantee of employment than the previous one.

7. With regard to 'interim wages', workers who are dismissed and take a case to court will be considered as unemployed from the first day. Until now the worker dismissed continued to receive pay from the first day until the case came before the court, which involved a cost for the company. The unions feel that this measure not only reduces costs for companies, but is also a form of 'free dismissal' and loss of wages for the workers affected. Furthermore, this measure removes the differences between justified and unjustified dismissal.

8. The 'allowance for the recruitment of women' previously covered 100% of social security contributions for a year in the event of the open-ended recruitment of women registered as unemployed for a least a year and returning to employment in the 24 months following childbirth. The reform extends the allowance to cover temporary recruitment as well. The trade unions criticise this measure because they feel that such recruitment is effective when the measures are selective and the relevant situations are well identified. Furthermore, it breaks with the principle of favouring only open-ended recruitment by favouring temporary recruitment.

9. The aim of the measures relating to the gradual abolition of the Rural Employment Plan (PER) is that people receiving benefit should accept any job offer, even involving a temporary change of residence. The unions feel that this measure will lead to competition with immigrant workers, including low pay.

10. The reform of the 1980 Basic Employment Law (Ley Básica de Empleo) has been a major demand of the trade unions. The Royal Decree introduced such a reform, but the unions criticise the fact that such an important law was not negotiated with the social partners. They are concerned that unemployment protection is not considered as a right, but as a set of 'active policies' that the public employment services provide to unemployed people, subject to the 'written commitment'. Furthermore, the reform provides obligations and penalties for workers, but does not create any mechanism for penalising companies that commit fraud in employment contracts. What is more, an increase in the staffing of the public employment services will be funded from the surplus of social security contributions, which will involve a transfer of savings on benefit in order to pay staffing costs that the state will no longer have to provide from general tax revenue.

The employers' position

The position of the CEOE and CEPYME employers' organisation, set out in a document entitled 'comments of the employers on the proposal of measures to reform unemployment protection and the Basic Employment Law' (issued on 17 April 2002), is that the reform must be set within the general context of the European employment strategy and in the framework of the coordination of European objectives and policies. The employers feel that the reform is in line with the EU policies of 'employability' of human resources and 'adaptability' of companies.

The employers consider that the government's initiative is only partial because it does not deal with the financial structure of unemployment protection. However, they consider the reform of the Basic Employment Law to be positive. They find both positive and negative aspects in their evaluation of the reform, as follows

• they are in favour of combining passive policies of providing economic benefits to unemployed people with active policies that promote their employability, as stated at the Barcelona European Council meeting;

• they are in favour of the emphasis on cooperation and coordination between public employment services and the organisations that manage benefit, and cooperation between the autonomous communities, INEM and the Social Security Agency (Agencia de la Seguridad Social);

• they express reservations about the proposed modification of unemployment benefit in the agricultural sector. The reorganisation of agricultural benefit by limiting the access of new beneficiaries and promoting the geographical mobility of the beneficiaries may have undesired consequences. These measures are difficult to apply in a sector that is geographically very dispersed, thus hindering mobility. Also, the requirements to use local workers make an increase of costs foreseeable in the agricultural sector;

• the employers are in favour of eliminating interim wages because they involve a cost for companies due to the slowness of courts in dealing with dismissal cases. Therefore, the new procedure provides greater efficiency, speed and security for both employers and employees;

• they consider that the 'written commitment' provided for by the Royal Decree does not essentially change the current situation, because the penalties are very light and involve few obligations; and

• finally, the employers see the reform of the Basic Employment Law as necessary and urgent in order to modernise the public employment service by introducing more effective and satisfactory management.

The employers' organisations criticise the government's use of a Royal Decree because it did not allow a full process of bargaining to take place. However, they are also critical of the trade unions, because they consider that the general strike called on 20 June is more political than economic in nature and is therefore unnecessary.

Commentary

The Royal Decree that reforms unemployment benefit takes its inspiration from the objectives of the EU employment strategy, particularly the guidelines associated with 'employability' and the principle of 'no social rights without social responsibility', as put forward by Anthony Giddens (a theoretician of the 'Third Way'). When these abstract notions and principles are developed and applied they can be very harsh. The decree involves an erosion of the right to unemployment benefit acquired by workers through their contributions and turns it into a mere instrument of active employment policy. The aim of mobilising the workforce so that it does not fall into the 'limbo' of receiving social benefits removes a right acquired by years of work. It even removes 'interim wages', which are equivalent to three or four months' wages for dismissed workers while they await the judgment of the courts, even if the dismissal is finally considered to be unjustified. This measure benefits exclusively the employers and reduces the cost of dismissal.

The measures contained in the Royal Decree on 'fixed-discontinuous' contracts also means that employees with seasonal contracts in sectors such as tourism, hotels and catering and education will be considered as part-time workers and will therefore not receive unemployment benefit in the periods of inactivity of such sectors. This measure will force the employees to save during the months of activity in order to support themselves and their families during the periods of inactivity (which range from six to eight months). Furthermore, some of these activities are in low-paid sectors, so the situation may be dramatic. Finally, the question of forcing unemployed people to sign a 'written commitment' with the employment office (under the principle of 'no rights without responsibility') could be ineffectual due to the incapacity of the employment offices in many geographical areas and sectors (due to lack of resources, lack of information, lack of staff etc) to bring together labour market supply and demand. (Antonio Martín, QUIT, UAB).