OECD hails Spain’s labour market reform

Labour reforms made companies more competitive

The politically divisive labour market reform pushed through by Spain’s centre-right government last year has made companies more competitive and has helped create 25,000 new permanent jobs every month, according to the first in-depth international study of the new regime.

In a move that is certain to delight Madrid, the Organisation for Economic Co-operation and Development hailed the reform as a success, saying it had “contributed to save jobs” and made the economy more flexible.

Spain continues to suffer one of the worst unemployment rates in the western world, with youth unemployment particularly high. According to the latest official data, more than one in four Spanish workers is currently out of a job – a rate that is widely predicted to fall only marginally in the coming year.

A study released by the OECD on Wednesday said the reform marked a “significant step in the right direction” all the same. The Paris-based group added: “The Spanish labour market has already shown some signs of increased dynamism and this is likely to bring about … faster productivity growth in the medium term.”

The study also found that the reform “contributed to promote hiring, in particular on permanent contracts”, adding that the overhaul “could be considered responsible for about 25,000 new permanent contracts each month”.

The reform of Spain’s labour market legislation is widely seen as the most ambitious – and politically controversial – policy pursued by the government of Mariano Rajoy to date. In an effort to inject more flexibility into the country’s traditionally rigid job market, the reform made it easier and cheaper to fire workers, and encouraged companies to depart from collective wage deals and strike agreements at factory level.

It was backed by employers and business groups but sparked angry protests from trade unions and the Spain’s opposition Socialists. Most Spanish labour market economists voiced qualified support for the reform, praising the new flexibility but warning that it did not do enough to bridge the vast gap between temporary and permanent workers.

Though the general tenor of the OECD study is positive, the group makes clear that further change is required. It calls in particular for better “active” labour market policies aimed at helping unemployed workers find new jobs. Echoing a widespread complaint among economists, the group also suggests steps towards “greater convergence” of the cost of firing temporary and permanent workers.

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