Committee makes labour market reform proposals

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January 2005 saw the publication of a report by a committee of experts set up to examine the Spanish labour market and make proposals for reform to be discussed by the government and social partners. The committee points out current weaknesses, notably a low employment rate, a high temporary employment rate, patchy and inadequate social protection coverage, and low productivity growth. It argues that the government and social partners must respond to these problems with a global approach based on measures to promote 'flexicurity'.

In July 2004, a document entitled 'Competitiveness, stable employment and social cohesion. Declaration on social dialogue 2004' ('Competitividad, Empleo Estable y Cohesión Social. Declaración para el Diálogo Social 2004') was signed by the incoming Socialist Party (Partido Socialista Obrero Español, PSOE) government and the social partners (ES0408101F). The document identifies the agenda for future social dialogue and a forthcoming reform of the labour market. It provided for a 'committee of experts on the social dialogue' (Comisión de Expertos para el Diálogo Social) to monitor the results of previous labour market reforms (ES9706211F), assess the current situation and developments and provide general guidelines for discussions on this issue between the government and the social partners. In January 2005, the committee published a 150-page report entitled More and better employment in a new socio-economic scenario: for effective labour flexibility and security (Más y mejor empleo en un nuevo escenario socioeconómico: por una flexibilidad y seguridad laborales efectivas). The main points are summarised below

Diagnosis

The committee considers that 'the behaviour of the labour market during the last decade shows good and bad points'. Some 900,000 jobs that were lost between 1992 and 1994 have since been compensated by 5,500,000 new jobs. The employment rate rose from 49% in 1992 to 59.7% in 2003 (when the European Union average rate was 64.9%). In this period there occurred a demographic change involving a sharp increase in immigration and increased involvement of woman in the labour market, together with later labour market entry of young workers and earlier effective retirement. The employment rate is still below the EU average, unemployment has not fallen below 10%, and objectives for the female employment rate and that of workers over the age of 55 do not appear to have been met. Also, though the temporary employment rate has fallen slightly, it is still at an 'unacceptable' level (ES0409104F).

There has been a slowdown in productivity, to levels below the European average, and inflation is still high despite wage moderation, a fact which threatens future economic growth and employment. Those positive results obtained so far have been the product of consensus, industrial peace and stable macroeconomic policy (zero deficit and control of inflation), according to the experts. However, they argue that this model and its positive consequences are coming to an end.

The report states that employment policy has proved to be insufficient in recent years (ES0412105F, ES0402102F, ES0302204F). Reforms have been partial and contradictory, because they responded to temporary phenomena. Successive modifications of the relevant legislation have failed to reduce temporary employment. Restrictive changes to the system of unemployment insurance have led to patchy coverage, and the function of unemployment benefit has been confused with the transfer of income to groups whose return to the labour market is neither expected nor intended. The results of an increase in resources for active employment policies are also debatable, above all with regard to the social benefit of some economic incentives for recruitment and of some public vocational training programmes, perhaps due to a lack of research to guide their application and design.

Employment policies, the experts argue, have confused protection of workers with protection of jobs. The measures have been ineffective and have led to an unfavourable trade-off between flexibility and security.

Despite its high level in Spain, temporary employment cannot be considered as structural, because it does not generally correspond to seasonal work and varies according to sectors. Though much depends on the employment conditions relating to open-ended contracts and on structural factors, it seems that the use of temporary contracts stems mainly from a desire for internal and external flexibility in companies.

The growth in temporary employment in the public sector (ES0311206F) is explained by restrictions on recruitment in this sector, problems of geographic and occupational mobility of public employees, and the role of some local active policies linked to annual funding programmes.

At present the measures to promote recruitment consist largely of financial incentives for employers to recruit workers on open-ended contracts and to recruit members of particular groups. There is said to be a confusion between these two aims and the efficacy of the measures is therefore limited. Furthermore, the cost of all open-ended employment has fallen, influencing the general 'replacement effect' between temporary and stable contracts. The subsidised contracts often last only as long as the allowance (two years), which benefits companies with most employee turnover. Therefore, coupled with poor coordination between public administrations, this line of action cannot be shown to be effective, the report states. Alternative schemes for fostering employment stability should thus be developed.

Though measures have been taken to reintroduce the principle that employers should have to justify the use of the various different types of temporary employment contract, a lack of sanctions where these rules have been infringed has condemned them to failure, it is claimed. The report does not recommend eliminating any current types of temporary recruitment, but states that it is possible to make the principle of justification effective, in order to reduce abuses, through clearer regulations on when such contracts are appropriate. Collective bargaining should play a major role in the stabilisation of jobs.

The committee observes that the institutional structure of the labour market does not guarantee security for workers, nor does it make a significant contribution to the flexibility of companies. The high rate of employee turnover prevents a better development of productivity.

Proposals

Companies see a need to adapt to increasing international competition through greater mobility of production and more technological innovation, according to the report. The context is one of volatile employment, greater heterogeneity of labour supply and an ageing workforce. These developments, it is argued, require changes in order to offer flexibility in personnel management and security for workers. Furthermore, the context of economic growth is weak and unbalanced (involving growth in non-dynamic sectors and growth without better productivity), and despite wage moderation there is a new risk of job losses in the future. The report proposes:

  • continuing with a stable macroeconomic policy, combined with a flexible labour market framework and secure, quality employment. In this reform of employment policies, a global approach must be taken to make the different instruments complementary, and contradictory interpretations of the law by collective bargaining and the courts must be resolved. Future reforms will come about through legislative action, action by the social partners and action by the magistrates and labour courts;
  • introducing policies that guarantee workers a permanent income without necessarily involving a permanent job, with the aim of protecting workers rather than jobs - in short, policies of employability and adaptability;
  • assessing thoroughly active employment policies and policies on equal opportunities for men and women, identifying the areas where they really obtain results and assigning more funding to the;.
  • fostering a concept of flexibility that does not merely mean temporary contracts or reducing the cost of dismissal, and placing more emphasis on workforce management policies, technological and economic improvement and higher pay, leading to internal rather than external flexibility. In short, flexibility should have positive effects on productivity and equity, which is not seen as possible with the current model; and
  • fostering reforms in education at all levels, continuing training, technological innovation and reducing barriers to competition.

Commentary

The committee's report results from a considerable effort of reflection and offers information of great interest for analysing the Spanish labour market model. However, it shows a calculated ambiguity in its proposals for 'flexicurity'. It does not question existing economic policy and calls only for a more flexible adaptation of employment policies, through an adjustment that removes the avoidable aspects of unstable employment without substantially altering the current model that causes it. Positive aspects in the report are the possibility of a better and more clearly defined regulation of recruitment practices, the criticism of the 'culture of temporary employment', the focus on the internal management of production (rather than discipline in contractual relationships), and the aim of protecting workers in order to guarantee a permanent income. However, the report arguably fails to specify the necessary control mechanisms and social protection measures, within a framework that seems to be unquestionable for the committee: a macroeconomic policy that is totally based on the evolution of the private sector and its cyclical rhythms. (Daniel Albarracín, CIREM Foundation)

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