The Bank of Spain asked for increased labor reform efforts yesterday, echoing requests from the European Commission and the Organisation for Economic Co-Operation and Development (OECD). For Luis María Linde, the Bank of Spain's governor, labor reforms have successfully increased flexibility and salary modification across the job market, but the reforms have not slowed down rampant job losses or created new positions.
For this reason, new mechanisms are being considered in order to boost job growth slightly, especially among young workers. Linde's proposal entails a temporary ban on the country's minimum wage, which is currently 645.3 euros per month in fourteen payments per year.
Not many workers earn this salary, which is one of the references used to fix minimum Social Security benefits, but it does mark the lowest possible wage that companies can offer employees. Business owners have been asking for a measure that will eradicate the minimum wage, which is preventing job growth. In a situation like the one Spain is in now, it is necessary to find options that can give paid positions to at-risk workers before they are out of the job market forever.
Adopting this measure would open the door to ?minijob? contracts like those offered in Germany. Lowering the minimum wage is not a sign of distress, and the Bank of Spain is correct in arguing that this move could temporarily help some companies to hire workers. If the issue is ignored, then the economy will continue to stagnate. And to settle for mere patches is a mistake, especially when unemployment tops 27% and could reach 28% soon. The government needs to create a single contract for job seekers and reduce unemployment benefits in order to get rid of redundancy in the labor market and stimulate workers to look for jobs.
