Final hurdles for labour market reform?

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All industrial relations activities in Spain have been at a standstill in early 1997, pending the conclusion of negotiations between trade unions and employers' organisations on labour market reform. However, initial agreements have been reached on types of employment contract and on dismissal

Diagnosis of the situation

Negotiations over reforming the labour market are still in the news in March 1997. Over the past few months all industrial relations activities, above all collective bargaining, have been at a standstill in the expectation of a definitive agreement, which is yet to be reached. However, in recent weeks great progress has been made in these negotiations. As a starting point, social partners agree, for different reasons, on the need to reform an employment market that is full of imbalances and inequalities. The trade unions have agreed to negotiate labour market reform in order to create greater job security in a highly precarious employment market. The aim of the employers, on the other hand, is to reduce labour costs, in particular dismissal costs, which they stress is a condition for job creation.

Approaches to the problem

Negotiations, which started formally in January 1997 (but informally in June last year), reveal a new approach on both sides. The go-ahead can thus be given to three new types of employment contract: a training contract for unqualified persons under 21 years of age; the current work-experience contract for young people (with some improvements); and a permanent contract designed to facilitate integration into the labour market - known as a "restructuring contract" (contrato de reconversión) or "star contract" (contrato estrella).

The extraordinary degree of job insecurity in Spain and the high rate of temporary employment (34% of all employment) have led the trade unions to negotiate on a subject that was previously taboo: dismissal. The new model of the "star contract" seems to be a permanent contract for persons under 29 years of age, long-term unemployed people (for over a year), and in general for all those who are on temporary contracts, which would now be converted into "star contracts". This new contract will have the same regulatory and legal guarantees as current permanent contracts but with the difference that the unions seem to be prepared to accept in its case a reduction in the costs of unfair dismissal - that is to say, dismissal without sufficient objective reasons. Compensation would then fall from 45 days' pay per year worked up to a maximum of 42 months' pay (which will remain applicable for the permanent contracts signed up to now), down to 33 days' pay per year worked up to a maximum of 24 months' pay.

Final hurdles?

Reasons for dismissal, which affect all workers, are one of the remaining serious hurdles in the negotiations. The CEOE (Confederación Española de Organizaciones Empresariales) employers' confederation believes that the causes of individual dismissal can be categorised under headings of economic, technical, organisational and production factors. However, the trade unions are not so sure and wish to take part in the control of dismissal through workers' committees and through bargaining.

In order to seek an agreement on this point, trade unions and employers have taken the question to the Supreme Court. The initial agreement reached assumes that a company's economically negative situation and difficulties that prevent it from functioning well will be suitable reasons for dismissal. In both cases, compensation will be 20 days' pay per year worked, up to a maximum of 12 years. Nevertheless, it is still not clear how these two situations are to be verified.

These are the final obstacles to the agreement. However, there are differences on the reorganisation of working time and questions relating to regulations of working conditions. There are also other concerns: basically the unions fear that this new model of "star contracts" will lead to the replacement of older workers by younger ones with lower labour costs. A proposed safeguard is to guarantee that this kind of contract may not be used for posts that become vacant in the 12 months following dismissal. For these reasons the negotiations are still open.

Three questions must be asked. Will labour market reform stimulate new jobs (a decrease in unemployment)? Will firms actually use the new model of permanent contracts to help create more secure employment? Or will they merely continue to use the convenient existing channels of temporary contracts or temporary employment agencies?