Spain consolidates its economy by tackling precariousness

Fight against precariousness, inversion of the hierarchy of standards, unprecedented revaluation of the minimum wage: the reforms implemented since 2018 in Spain by the left-wing coalition, fruit of the union of the Socialist Party (PSOE) and Unidas Podemos but also of more than a year of negotiations between unions and employers, are beginning to produce their effects. In May, the country had less than 3 million unemployed, or more exactly 2.92 million, according to figures from the Ministry of Labor. Unheard of since the 2008 financial crisis.

Over one year, the number of jobless people even fell by 22.7% (–858,259). And this is due to the creation of positions, particularly on open-ended contracts: + 730,427 permanent contracts, ie the highest monthly figure ever recorded. Because, remember, Spain was one of the countries in Europe where employment was the most precarious, with piecework contracts. By choosing to promote permanent contracts to the detriment of short-term contracts, Spain is “changing the paradigm”, points out the Communist Labor Minister, Yolanda Diaz. From now on, of the jobs created, almost one in two new contracts is signed for an indefinite period (44.5%) instead of just one in ten before the reform (10.3%). The wave of hiring is sweeping away all sectors of activity. And, even among those under 30, the number of permanent contracts has increased by more than 20% compared to 2019.

A significant increase in wages

Encouraging figures which reveal the first effects of a historic labor reform, voted at the beginning of the year. In detail, to limit precariousness, the CDD is now limited to 18 months over a period of 24 months, which, at the end of the period, is transformed into a CDI. If the CDD lasts less than a month, the employer will be heavily taxed.

« Even if we lack hindsight, this reform seems to profoundly change hiring practices without, however, being at the expense of job creation », points out the economist of the OFCE Christine Rifflart. As a reminder, Spain is one of the European countries where precariousness has been pushed to the maximum. This labor reform resulting from an agreement between the Spanish trade unions and employers shows that the deregulation of the institutions of the labor market does not bring the desired effects. To ensure economic stability, Madrid has equipped itself with a protective framework worthy of a country which « seeks to develop », she summarizes.

Added to this is an increase in wages. The economist cites in particular the increase in the minimum wage, which has been increased four times since 2019, by more than 50%. With 1,167 euros gross per month, Spain is now the seventh country in the European Union where the minimum wage is the highest. Before the interventions of the government of Pedro Sanchez, it stood at 735 euros, roughly the level of the Portuguese minimum wage, which reaches 705 euros. The economist sees the outline of “a certain dynamic in wage negotiations in comparison with the last twelve years”. Especially since the labor reform provides for the prevalence of the branch agreement over the company agreement, unless the latter is more favourable. Agreements that should apply to subcontractors. This should pull all wages up.

The recovery of the tourism sector

This social model has not penalized business investment, which remains “very dynamic”, notes this specialist in the Spanish economy, stimulated in part by the 140 billion euros of the European recovery plan.

The fact remains that the measures put in place due to the surge in prices (+8.4%), in particular energy, have not made it possible to restore confidence to Spanish households. Result: in an economy where domestic consumption remains one of the main drivers, it is unfortunately completely “sluggish”, notes Christine Rifflart. “Consumption has not returned to its pre-crisis level, it has remained quite weak, weaker than expected despite the rebound in growth last year. According to an initial estimate published by the National Institute of Statistics (INE), Spanish GDP grew by only 0.3% over the first three months of the year. For this year, the government has revised down its growth forecast for 2022 to 4.3%, against 5.1% last year after a fall of 10.8% in 2020.

The OFCE economist hopes that these social measures will cause a demand shock, which, with the recovery of the tourism sector, could “consolidate” a growth dynamic. To overcome the inflationary wave, the government approved a battery of measures aimed at curbing the consequences of the war in Ukraine on the country’s economy for an amount of 16 billion euros: 6 billion in direct aid and 10 billion in loans guaranteed by the state.

140 billion euros to modernize the productive fabric

It is one of the big winners of the European recovery plan, with a budget of 700 billion euros. By pocketing nearly 70 billion euros in subsidies, to which is added another potential component of 70 billion in the form of loans, the country is embarking on a vast private and public investment plan to ensure the energy and digital transition. Objective: to transform its economy so that it is no longer entirely dependent on the service and tourism sectors. During the pandemic, the Spanish economy collapsed and many production capacities were threatened. The ecological transition will capture 39% of investments, digital 29%, and education and training projects 10.5%.