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IMF calls for labor market reforms in Spain

Escrito el 13 diciembre 2008 por Gayle Allard en Economía española

The warning that Spain received from the IMF yesterday over the need for structural reforms highlights once again the rigidity of labor markets and their effects on productivity.

According to the IMF, Spain needs to make structural reforms in order to avoid an “L-shaped” profile following the GDP contraction in 2009 that the IMF forecast at 1%. The rise in public debt needed to combat the crisis could only be easily overcome if markets were more flexible, said the IMF, mentioning in particular labor markets.

The labor-market reforms it called for were: lower dismissal costs, to boost hiring of younger and better educated workers; more flexible collective bargaining agreements to prevent bankruptcies and preserve jobs; and an end to wage indexation with inflation, which has sapped Spanish competitiveness.

In the absence of these reforms, the IMF said, Spain could get stuck in a “low-competitiveness, slow-growth, extended-deleveraging, and high-unemployment equilibrium, from which returning to lower public debt would be difficult”.

Spanish labor markets are among the most rigid in the OECD despite a series of small reforms since the 1980s. High dismissal costs for workers on indefinite contract have made firms reluctant to make new permanent hires, which has left the country with a temporary employment rate of more than 30%. In the current crisis, temporary jobs are the first to be eliminated, leaving in particular young workers, women and immigrants with much higher unemployment rates.

Comentarios

Juan 12 diciembre 2008 - 14:26

I have a doubt: it is the cost of permanent contracts that deters employers from using them, or maybe it is the low cost and availability of temporary contracts? Couldn’t we try to control the illegal use of temporary contracts instead of proposing to make all contracts temporary (as the IMF implicitly says)?
In fact, what risk are companies taking if they don´t have to pay money when they fire workers? If they don’t take risks, then they don’t deserve profits. That I would accept: lower cost of firing but higher relation between wages and profits
http://www.recursosescasos.com/2008/11/favor-salarios-vinculados-los.html

Miguel 15 diciembre 2008 - 20:31

Maybe we should try to find a new equilibrium. It is absurd and inapropiate to have so high fire costs. It is really good thing for who is already hired as permanent, but a nightmare for those who are unemployed or has a temporal contract: precisely who should be more protected by the system are penalyzed.

It is right, as Juan said, the solution should not simply be to transform all contracts in “temporals”, but with significant lower firing costs, companies would not be so reluctant to hire new permanent employes, and would discourage some perverse actitudes of those who have loooong time in the same job (“antigüedad”), and feel untouchable for being too expensive to be fired.

But think about one very important thing, that nobody takes into account:
– Should not be more wisely to wait to start the recovery to implement the reforms?? All multinationals need to reduce production: for example, where do you think they will close more car factories? in those countries where is free to fire or in Spain where its really expensive? cars are easily exported (logistic costs are not so important as %). If you wait a little, the reductions in Spain will affect less than in other countries, and after the hardest, the labour reforms will help us to recover.

P.S: Excuse my rusty English.

Miguel 15 diciembre 2008 - 20:34

Maybe we should try to find a new equilibrium. It is absurd and inapropiate to have so high fire costs. It is really good thing for who is already hired as permanent, but a nightmare for those who are unemployed or has a temporal contract: precisely who should be more protected by the system are penalyzed.

It is right, as Juan said, the solution should not simply be to transform all contracts in “temporals”, but with significant lower firing costs, companies would not be so reluctant to hire new permanent employes, and would discourage some perverse actitudes of those who have loooong time in the same job (“antigüedad”), and feel untouchable for being too expensive to be fired.

But think about one very important thing, that nobody takes into account:
– Should not be more wisely to wait to start the recovery to implement the reforms?? All multinationals need to reduce production: for example, where do you think they will close more car factories? in those countries where is free to fire or in Spain where its really expensive? cars are easily exported (logistic costs are not so important as %). If you wait a little, the reductions in Spain will affect less than in other countries, and after the hardest, the labour reforms will help us to recover.

P.S: Excuse my rusty English.

Álex 27 diciembre 2008 - 20:47

As for me, it is not a good idea to make layoff even cheaper than now in Spain.

Spanish employers are used to a very low cost labour force and layoffs. In fact, many Spanish companies’ profits are based on this cheap manpower and layoff so they do not need to make a big effort to find out the way they can get more profit while paying their workers well.

If the labour force remains not too cheap, the employers will have to think the way to make their companies still profitable so their profits will not be based on a cheap manpower and layoff.

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