The right kind of reform

With nearly five million Spaniards officially registered as unemployed and little likelihood of any job creation over the course of the coming year, it is clear that the labor market needs a more thorough reform than that implemented by the outgoing government of Prime Minister José Luis Rodríguez Zapatero. An overhaul of pay and conditions in itself will not generate employment, but will help when demand does finally begin to pick up.

Prime Minister-elect Mariano Rajoy has told the employers' confederation and the labor unions that they must reach agreement on labor market reforms, which the Popular Party considers essential to reducing unemployment. The likelihood of the two sides reaching agreement may be slim, but they are likely to be slimmer still if the recent proposals made by the head of the employers' confederation, Juan Rosell, are implemented: a new part-time contract with a monthly salary of 400 euros that would allow employers to hire and fire as they see fit.

The basis of any labor market reforms must continue to take into account the right of workers to negotiate their conditions, and for employment to be stable. The reasons for Spain's extremely high unemployment rate are varied, but one of the most important is that many businesses have closed because they were obliged to respect collective wage agreements that are out of touch with the economic climate.

Simply by applying any of a number of formulas available in the rest of Europe (for example Germany's subsidies using social security payments to help employers spread employment among their workforce), our jobless rate would be well below 20 percent.

Collective negotiation should allow companies to pull out of collective agreements if a majority of the workforce wishes; it would also streamline negotiations, removing the labor unions and the employers' confederation from much of the bargaining process. As regards contracts, the best way forward is to simplify and stabilize employment. The idea of creating a new contract (there are already 17 models) makes no sense. A sensible reform would be to apply a single model, offering a long-term contract, and with compensation based on the amount of time served in the event of being laid off. The myriad short-term contracts now being used only serve to complicate matters and do little to stabilize the labor market.

The new government would be well advised to think long and hard before undertaking labor market reforms. The calls from the employers' confederation to make it cheaper and easier to sack people, along with junk contracts, will solve nothing. The reactivation of the economy must be based on a stable labor market, and one that will pave the way for long-term consumption; it cannot be based on precarious conditions. That is simply the recipe for another property bubble. This country has had enough of short-term solutions in the labor market.