Labour reform advances help Spain's competitiveness

Labour reform advances help Spain’s competitiveness

Spain’s labour market reform has been a catalyst for economic recovery, boosting competitiveness which has fuelled a surge in exports and re-ignited foreign investor interest.

The ruling conservative Popular Party implemented a labour reform in 2012 that cut firing costs and allowed companies more flexibility with workforces in times of crisis. Measures to close the vast gap in benefits for temporary and permanent workers were also introduced. According to a report released by the Organisation for Economic Co-operation and Development (OECD) in December 2013, the legislation helped create about 25,000 new permanent jobs every month and the government has promised a second labour reform which is set to simplify the hiring process and make part-time contracts more flexible.

So what are some of the key elements of the 2012 labour reform? These include:

• Companies have been encouraged to depart from collective wage agreements at factory level. This has helped lower labour costs which in turn have contributed to some of Spain’s key industries regaining competitiveness.

• Businesses have been granted tax breaks for hiring workers under the age of 30, a move aimed at reducing Spain’s close to 50 per cent youth unemployment rate.


Spain now has one of the lowest labour unit costs in Europe thanks partly to the 2012 reform, which limited trade unions from negotiating collective bargaining agreements across entire industries and the decline in labour unit costs and contained wage rises have contributed to making companies more competitive which has been reflected in the increase in Spain’s exports over the last year.

Low labour costs have also attracted renewed foreign investment, particularly to the automotive industry, where the labour market is an estimated 40 per cent less expensive than those of Europe’s other biggest car-making countries.


Just over two years since the first labour reform was introduced, unemployment in Spain has come down slightly, but it is still running at over 25 per cent as the country emerges from a two-year recession which followed a prolonged housing boom that saddled banks and consumers with huge debt.

Spain’s so-called temporary contract economy has been widely blamed for the high jobless figures. By early 2012, it accounted for 1.4 of the 1.6 million jobs lost since 2007. So further labour reform will focus on providing incentives for companies to offer more permanent contracts, as well as reduce the time needed to ensure a permanent contract. While many Spanish workers and trade union representatives continue to rail against the clampdown on negotiations for across-the-board wage increases, the government knows it must continue to adjust employment and salary conditions to the current economic climate.

If you’re interested in investing in Spain, contact corporate law firm Argali Abogados.

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