Since 2008 Spain has been crossing an economic and financial crisis that has lead the government to implement new reforms so as to promote competitiveness. Competitiveness can be defined as “the set of factors, policies and institutions that determine the level of productivity of a country taking into account its level of development” as it was explained in the global competitiveness report 2013-2014. The Spanish government is implementing new reforms, that it if they succeed, can reduce the national debt and increase productivity. However, in the long run, it harms the level of development of this country. Human Development indicators (HDI) focus on health, education and income. Will austerity measures produce a competitive national market in the future if cuts are done basically in these 3 sectors?
1.1. “the extremely aggressive” labour market reform
Spain’s unemployment rate is 27% of the population and 50% of young people can’t find a job. In order to put an end to this catastrophic situation the government signed last February the Royal Decree Law 3/2012 on urgent measures to reform or better said transform the labour market. This new policy aims to achieve a greater flexibility in the labour market. In order words, this law encourages companies to increase the effectiveness of their employees. Many international organisms claimed that Spain’s Labour Market reforms are the basis of the country’s improved economic performance. However, it is naive to think that labour market reforms will help reduce unemployment. The greater flexibility given by this new policy is going to increase unemployment in the short run since it is easier for firms to fire their employees. This is due to the new regulation, that enable employers to fire their staff without giving them redundancy benefits. Moreover, firms are being incentive to create temporary contracts instead of long term ones, which is harming the employee’s well-being. Due to the fast track arbitration procedures that have been introduced in these new policies, employees’ rights are not being respected in certain cases, because there are workers that do not have their own agreements and have to adopt outcomes from collective bargaining processes in which they are not represented as it was announced by the OECD.
1.2. The inefficiency of the labour market reform
What is the result of reducing the minimum wage, firing public servants, implementing temporary contracts, allowing employers to decide the revenue and the hours of work of their employees?
Firstly, most temporary contracts are addressed to young and low skilled workers, who have precarious conditions of work, hence Spanish over qualified workers are obliged to go abroad to find employment in their specific area. Over the last 2 years it is calculated that 50 000 spaniards have migrated to Germany. Nevertheless this ‘brain drain’ of engineers and other professionals will hurt Spanish competitiveness once its economy recovers. One of the main pillars of competitiveness is the capacity of innovation, how will the Spanish government encourage innovation if the availability of scientists and engineers is decreasing rapidly?
It is also true that temporary contracts alter consumption behaviors because employees do not know when they will find stable work, therefore they save money for precautionary purposes. However companies need to sell their products in order to stay in the international market otherwise they have to close down their companies, which will lead to more unemployment. Since the beginning of the crisis, over 177000 medium and small Spanish companies have been brought down.
What should also be emphasized is that cuts on wages will not incentive workers to maximize their capacity of work, leading to a decrease in competitiveness. For example, teachers from the public system are overburdened with work, since last year over 40000 teachers were made redundant, and to show their disagreement with these new education reforms they took part in strikes that cost a lot of money to the government.
1.3. solutions are needed
What should be done is the reduction of temporary contracts, because in 2 years or less workers will not even acquire the knowledge and skills to make their work more productive. Moreover, employers do not want to invest in internships or trainings in a temporary contract, hence the workers’ productivity drops.
A new contract form should be elaborated for highly educated young people for 3 years following the German model. Therefore the Spanish government should invest in workers from sectors that are strategic in the long run as research, medicine, and innovation and create qualified employees to sustain the country. Nevertheless Spanish deficit is 10,60% of the GDP. The state needs to collect more funds and one of the solutions could be to raise extra taxes in sectors that are not strategic.
In conclusion, I would say that we need transition from an equality concept of welfare to an equity concept. This change will permit the state to have more funds to invest in areas that will lead to a future economic growth with a better competitiveness and a better place in the international markets. The labour market reforms should change in order to create efficient workers, so as to maximize our highly qualified young citizens that are eager to be productive for the Spanish society.
LSE, “Spain’s labour market reforms are unlikely to lead to economic growth or a drop in unemployment” (Robert Hancké) [internet] Available from: http://blogs.lse.ac.uk/europpblog/2013/02/15/spain-labour-unemployment/
New York Times, “Short of Skilled Hands, Germany Looks South” (Judy Dempsey) [internet] Available from: http://www.nytimes.com/2013/05/28/