Has the Spanish government presented an ambitious labor reform? Although the reform still needs to be drafted and approved by Congress, at first glance it does not look as drastic as expected, much less designed to achieve what the labor unions are demanding. But under closer scrutiny, the reforms contain more content than it seems.
The cost of dismissal has been reduced to 33 days severance, down from 45-days. The reforms introduce language about the causes of fair dismissals that could very well reduce this length to 20 days. Judges should approve a company's ability to opt for shorter severance periods when it experiences three successive quarters of falling profits or invoicing. Maybe it will be up for debate what constitutes a loss, but earnings or sales figures would be much easier to explain. Although the reform could present some challenges for the self-employed or multinational workers, it marks an important step for Spanish labor markets and will align layoff costs in Spain with those in other Western European countries.
The big question now is how the judges will respond to the labor reform. In Spain, issues are more often addressed through the lens of social politics instead of big business, so judges generally sympathize more with workers than businesses.
There is a possibility that the reform will have a muted effect. And ultimately, duality will not be done away with since two forms of severance will still exist.
From another angle, there will be limits on how workers can chain together 24-month temporary labor contracts. This would be a positive measure for labor markets, but hard on workers given that many people now rely on this form of employment. The negative impact of this measure will be balanced by a form of training contract offered to young workers, which will involve a one-year trial period that does not offer any form of severance. Also, the mechanisms for supporting aging and young workers who are unemployed for longer than 45 days would be improved. Yet the annual benefits would only be around 1,000 euros, which is not a big help. In regard to tax deductions available to companies who hire full-time workers, these will not have a major effect either because so many companies are operating in the red. Perhaps it would have been better to reduce social welfare taxes on individuals.
Another positive aspect of the reform is that it aims to prioritize corporate interests. But in this regard, there could be one problem: the majority of companies do not have the structure to articulate every agreement, so they are choosing to endorse short-term agreements. And these will not have legal precedence over the tight network of agreements within local and regional areas of government that are strangling companies. Further, it seems like excessive that labor unions took two years to come to terms with this high-impact agreement would. And despite the fact that it will be easier for companies to opt out of agreements, how much time will pass before a resolutions committee and arbitrator needs to be named and what doubts will arise at that point? Such a commission would be a very bureaucratic group ought to be avoided.
The reform will improve many aspects of Spain's labor market, but doubts remain. Above all, we are losing an irreplaceable opportunity to change from the top level a system that was conceived in a post-Franco time and using paternalistic ideas. We could have produced reform legislation that is more adapted to the realities of today's more flexible and global economic reality.