Towards further liberalisation of the labour market: Spain’s pending task
11 de marzo de 2020

Unemployment is, without a doubt, one of the main consequences —and one of the fastest to emerge— of poor economic decisions, as well as the point of origin of a multiplicity of further problems, such as poverty or absence of social mobility.

Milton Friedman rightly said, describing the interventionist paradigm, that «one of the biggest mistakes is judging policies and programs by their intentions, rather than their results.» Often, interventionist politicians, for the sake of solving these kinds of social problems, advocate for solutions that seeking what Friedman said decades ago: to make the ball bigger under the pretext of «dissolving it.» However, despite having been shown hundreds of times in the past that certain measures simply do not work, it seems that, as they are supported by good intentions, their ineffectiveness is irrelevant. A huge mistake, which condemns societies to repeat their wrongdoings over and over again, while politicians defend themselves with the classic argument that, if the measure failed, it was because it was not applied good enough, but that, next time, it will finally work.

It seems irrelevant that certain measures do not work, provided they are supported by good intentions

Interventionism is usually practiced more assiduously in the labour market, whose regulation, that is, labour legislation, is of major importance in relation to the general functioning of a country’s economy.

The great problem that Spain has today, and that it has been carrying for decades, lies in the skyrocketing unemployment rate compared to that of the rest of neighbouring countries. Exaggeratedly high figures, not only during times of recession, but also during times of economic expansion. Thus, while the average unemployment rate in the eurozone amounts to 7.4 percent, that of Spain, the thirteenth world power by GDP, almost doubles it, hovering around 14 percent. Why are our unemployment figures more similar to those of Colombia (11.8 percent) or Brazil (11.2 percent) than those of Germany (3.2 percent) or Denmark (4.9 percent)?

It is our labour legislation’s fault, together with other that directly affect employment, such as the minimum wage. Raising it above marginal productivity in a market in which, at a time of relative economic expansion, the unemployment rate remains abnormally high, constitutes a time bomb.

The Minister of Labour, Yolanda Díaz, in the same way as her predecessor Magdalena Valerio, has reiterated on multiple occasions her desire to repeal the labour reform that the People’s Party promoted in 2012, as, in her opinion, it pauperises the conditions of workers , by increasing temporality and promoting low wages as a rule. But nothing further from reality. Because, if wages in our country turn out to be relatively low with respect to those of the countries of our surroundings, it is due to the soaring unemployment rate. Unemployment and high wages are incompatible. Therefore, if we want wages to improve through a labour reform, it would have to be almost exclusively focused on reducing the unemployment rate, which goes through the liberalisation of the labour market. Therefore, should we repeal the 2012 labour reform? Yes, as long as it is replaced by one that seeks to advance in terms of market flexibility, contractual liberalisation, and the elimination of the duality between permanent and temporary workers. In short: we have to go one step further.

It goes without saying that the counter-reform advocated by the Government is taking a completely opposite direction, tending to the rigidity of past labour regulations, with all that this implies: high rates of temporary employment —today substantially reduced thanks to the reform—, and greater structural unemployment. And that in an uncertain, changing and globalized environment where the market demands we go precisely in the opposite direction.

We should learn, once and for all, that making hiring more expensive ends up being counterproductive for the worker, given that this measure especially hinders indefinite contracts, those that promote greater investments in human capital by companies which will be translated in the future into more productive workers and higher wages.

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