Agreement at last on labour market reform

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After 10 months of discussions and three months of intense negotiations, in April 1997 the main trade unions and employers' associations in Spain for the first time reached an agreement on labour market reform. This is a bipartite agreement which reduces the cost of dismissal and attempts to promote secure employment. The Government is likely to introduce legislation to support the reform.

The Labour Agreement for Employment (Pacto Laboral por el Empleo), which is the name the new agreement has been given, is divided into three parts, each dealing with different subjects.

The aim of the first part, entitled theInterconfederal Agreement for Employment Stability, is to reduce the very high rate of temporary employment (35%) by fostering secure employment contracts, and to establish the reasons for "objective" dismissal. Job insecurity has led the unions to negotiate on a subject that was previously taboo - dismissal - in exchange for greater stability at work. The employers were led to negotiate for different reasons, which include the negative effect of temporary employment on consumption and the recovery of the economy. Another influence was the increase in the cost of dismissal for "objective" reasons, which involved too many court cases.

The second part, the Agreement on Collective Bargaining, aims to give a more important role to collective bargaining and to modify its structure. It aims to reduce disconnected and uncoordinated bargaining and to set up a more centralised system based on sectors of economic activity. Another aim is to organise the different areas of negotiation at a national sectoral level, at a regional level and at a company level.

The third part of the agreement deals with the gaps in the regulation of working conditions in 22 subsectors of activity, which until 1994 were regulated by the labour ordinances. The previous reform allowed an opening to regulate these areas through collective bargaining. This did not occur, however, and there was a general gap in the regulations that has now been provisionally covered by this agreement, pending definitive negotiation by the social partners.

The leaders of the employers' organisations - the Spanish Confederation of Employers' Organisations (CEOE) and Spanish Confederation of Small and Medium Sized Enterprises (CEPYME) - and those of the trade unions - the Trade Union Confederation of Workers' Commissions (CC.OO) and the General Workers' Confederation (UGT) - have backed the draft labour reform agreed by the negotiating panel. However, approval was not without its critics, and created dissent both within the trade unions and the employers' associations. Furthermore, it has still to be debated by the decision-making bodies of the trade unions and employers' associations, though it is unlikely to be rejected. This document, which the leaders of the trade unions and employers' associations have called "the best possible agreement", will probably be signed towards the end of April 1997.

The labour market reform was negotiated by the social partners without the intervention of the Government. However, the Government, and in particular the Ministry of Employment, has supported and closely monitored the negotiations, and has taken measures to complement the labour reform and to make it more effective. It is currently studying several courses of action. The first is to raise contributions on temporary employment contracts in relation to permanent contracts. Permanent contracts could also benefit from tax relief. Other possible measures would be to reorganise subsidies, which have so far been awarded to temporary contracts, and to award them instead to permanent contracts.

The reform also involves the revision of the Workers' Statute (1980) and the Labour Procedure Act (1990). The Ministry of Employment is currently studying the introduction of these modifications through a decree-law or through an act of parliament. This is pending negotiation with the various parliamentary groups.

Nevertheless, the future holds a series of questions for which there are currently no answers. Will the labour market reform stimulate an increase in new contracts? Will companies use the new permanent contract model or will they continue to use the convenient formula of temporary contracts for work and services? Or will they use temporary employment agencies?

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