EUROPE
A jobs plan for Spain (and Europe too)
Spring 2010
Spain’s troubled labour market highlights the unemployment problems across the EU, says Mariano Rajoy Brey, leader of the Partido Popular. He puts forward a reform agenda for Spain that has EU-wide relevance
Whether or not Europe is in for a “double-dip“ recession with a second downturn yet to come, the crisis we currently face is jobs. That means that most EU governments will be judged on how well they tackle unemployment, and this holds particularly true for Spain.
The Spanish labour market is in need of reform, and it’s not a new problem. For decades, Spanish society has been resigned to low rates of employment. The country’s highly acclaimed transition to democracy after the Franco’s era was not accompanied by comparable economic improvements. Back in 1975 there were 12.5m people employed in Spain, and 20 years later despite an increase in public sector employment that figure hadn’t changed. Private sector jobs had actually shrunk during this period.
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EW BACKGROUND BRIEFING
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On jobs, the worse may well be yet to come
European Central Bank president Jean-Claude Trichet last year drew an ominous W in the air to describe how he thought Europe’s economies would fare in 2010. Many indicators suggest that his ‘double dip’ prediction looks likely to be borne out.
Although many EU countries were badly hit by unemployment last year – Latvia’s rate went from 9.1% to 20.9% and Lithuania’s from 4.8% to 13.8% – year-end figures suggested Europe was hauling its way out of the first dip of the recession.
The GDP of the EU-27 grew by 0.4% in the last quarter of 2009. For some, this was a vindication of state employment subsidy schemes which protected many EU jobs from a 14.1% fall in industrial orders. In Germany, subsidy schemes helped unemployment to drop from 8.2% to 8.1% by November. And unemployment in the EU was rising at an average of only 0.1% per month by the end of 2009, a marked improvement on 2008 when it was rising from between 0.2% to 0.3% per month.
But these gains risk being short-lived. With state subsidy schemes running short of money, jobshedding could be widespread in 2010, so many EU member states are bracing themselves for the second dip of Trichet’s W. The International Monetary Fund (IMF) predicts that eurozone unemployment will rise by almost 2% this year, and in Germany it could peak at 10.6% because many of the schemes that gave temporary shelter to the German economy will expire.
Spain is likely to be the worst hit this year, with its overall rate jumping from 17.9% to 20.1%. Other countries badly affected will include Ireland, with joblessness going from 12% to 15.5%, and Lithuania, 13.8% to 17.6%. Italy’s rate is due to rise from 9.1% to 10.5% and in the Netherlands it will almost double to 6.6%.
And the double dip is set to continue into 2011, when the IMF predicts that EU unemployment will hit 12%.
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An improvement in Spain’s labour market had to wait until new policies
were brought in by the government of José Maria Aznar. I was proud to
contribute to those developments at a time when job numbers increased
substantially. From 1996 to 2004, the year we lost the general election
to José Luis Rodriguez Zapatero’s PSOE socialist party, 5.5m new jobs
were created, a figure which had grown to 20.5m by mid-2007. Nowadays,
Spanish people are proud of two main accomplishments; the political
transition of the 1970s and the economic upturn of the 1990s, both of
which were made possible by centre-right governments.
But now
things are moving in the other direction. The rate of job losses in
Spain is the highest in Europe, and probably the highest in the western
World. Nearly 80% of job losses in the eurozone were at one point
concentrated in Spain. Although Spain’s Labour Market is so defective
that basic reforms are called for, Mr. Zapatero is so concerned with
short-term political advantage that he has rejected the need for
reform. This approach may enhance the government’s relationship with
the trade unions, but it clearly damages the country’s medium-term
welfare, especially with regard to those people who currently are
unemployed.
A comprehensive labour reform strategy for Spain
means we should pay attention to four main areas: First, education. We
in Spain spend billions of euros trying to improve the skills of both
our working and unemployed populations. The results are far from
satisfactory. Because of the shortage of people with adequate
qualifications, many vacant jobs go unfilled. Yet we still have the
highest unemployment rate in Europe.
The current system needs
to be replaced, and at the same time accompanied by strict public
spending controls and better performance monitoring. New evaluation
procedures and official certification should be introduced in areas
like foreign language skills and computer literacy skills.
Labour
market mediation also needs to be reformed. The public employment
agency is quite efficient at managing unemployment benefits, but
performs poorly in terms of labour market matching. Few Spanish people
can say that they found a job thanks to the national or a regional
employment agency. New forms of partnership between the public and
private sector, such as outplacement firms, produce better results.
Collective
bargaining for wage and general working agreements are overdue for
reform. It is well known that labour bargaining gives better results
when carried out on a national or even company basis, yet regional or
collective bargaining tends to be the norm in Spain, even though it
often ignores the problems of unemployment and absenteeism.
But
the most important and most difficult area of reform concerns
inequality. The Spanish labour market works on a two-tier basis, split
between first-class workers, who if dismissed enjoy very high severance
compensation, and temporary workers who have very little social
protection. This is a difficult issue that urgently needs attention.
Job protection is unfairly divided between these two classes of
workers. The system is inefficient, and lay-offs depend almost
exclusively on the kind of contract a worker has, as opposed to the
skills or the performance of an individual worker.
The reforms
I am proposing of course concern the Spanish labour market, but
probably have some relevance elsewhere in the EU. For although other
European countries may have done better with their own labour markets,
overall the results are dissatisfying, particularly when it comes to
the relationship between labour markets and the welfare state.
For
the most part, welfare systems and labour market reforms should be
brought in at national level. However, reforms like those proposed
above are easier to implement if there is a coordinated European
strategy. The Lisbon Agenda agreed back in 2000 was a missed
opportunity because although it was intended to be the first economic
package that combined European and national competences, it signally
failed to propose significant reforms even though the European
Commission had been warning that in many EU members the Welfare State
was no longer sustainable.
After a lost decade, we need to
re-launch a new strategy for economic reform in Europe. This strategy
should genuinely seek to ensure that our economies are the most
competitive in the world, and that our social systems become genuinely
sustainable. And to repeat my introductory remarks, political success
should be measured in terms of jobs and welfare. If we don’t act now it
will be the EU that is deemed a political failure. |
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