How Spain has taken on the problem of precarious work

Europe’s workers are famously well protected by rights and regulations, but the continent’s dirty secret is that they don’t extend to everyone. Countries such as France, Spain, Italy and Portugal have long had insulated insiders who are hard to fire and insecure outsiders who churn from one temporary contract to the next. Inevitably, the young have been most likely to get stuck on the outside: 37 per cent of the euro zone’s under-30s workers are on temporary contracts.

But now Spain – the poster child for precarious work – is trying to put a stop to all that. And so far, its efforts look remarkably successful.

Europe’s insider-outsider labour markets date back to reforms in the 1980s, 1990s and 2000s which made it easier for employers to use flexible contracts, but kept strict protections for people in permanent jobs.

Temp jobs aren’t inherently problematic. Employers clearly need some flexibility for seasonal ups and downs and other unplanned events. They can also help young people and jobseekers to get a first foothold in the world of work. But when they become too widespread they can become more like traps than stepping stones, leaving the young going from one fixed-term contract to the next without access to decent training, which would boost productivity.

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By 2018, the OECD had concluded that widespread temporary work “tends to have only a limited impact on improving employment opportunities for disadvantaged groups” and comes at “the expense of permanent employment, reducing job quality, slowing the transition of temporary to permanent work and reinforcing long-term inequalities in the labour market”. Nowhere was this more evident than Spain, where the proportion of under-30s on temporary contracts has been above 50 per cent for most of the past decade.

Until last year, that is, when Spain’s left-wing government set out to “recover workers’ rights without hurting business” in a deal it thrashed out with employers and trade unions. The new rules, which began in 2022, aimed to put a stop to the use of back-to-back temporary contracts and make new permanent jobs the rule rather than the exception. A new “open-ended contract for intermittent work” was introduced for employers in seasonal sectors, under which staff would remain linked to the company when the season ended and called back when demand resumed.

Jorge Uxó, an economics professor at Complutense University of Madrid, told me the impact of the reform has been “extraordinarily positive” so far. The share of employees on temporary contracts fell from 26 per cent in 2021 to 18 per cent by the end of last year, not far off the euro-zone average of 14.6 per cent. For the under-30s, the rate fell from 58 per cent in 2021 to 39 per cent.

This hasn’t happened through the mass dismissal of temporary workers – as was the case after the 2009 crash – but rather at a time of overall job creation. Between the fourth quarter of 2021 and the fourth quarter of 2022, the number of workers on temporary contracts fell by 1.2 million, while the number of workers on permanent contracts rose by 1.6 million.

This should be good for the wider economy, too. Research by the Bank of Spain shows people on temporary contracts in Spain tend to spend a smaller share of their income than people on permanent ones. The rise in the number of workers in stable jobs should help to boost household spending, the central bank said.

There are some caveats. It could be argued the new “intermittent open-ended” contracts are not much better than temporary contracts, since people on them still don’t have secure incomes. Against that, Uxó and other economists say they do confer more rights on workers and account only for a minority of the new permanent contracts anyway.

The bigger question is what comes next. Spain still has a pretty high share of temporary work and the reforms haven’t been tested yet in a downturn. It is also too soon to know whether they will boost training and productivity in the longer term. Rafael Doménech, head of economic analysis at the bank BBVA, says the “balance is positive” so far and demonstrates “the flexibility and capability of firms to adapt” to new rules. “But there are many other aspects where the jury is still out.”

Nonetheless, there is perhaps a bigger lesson here. Over the past decade, it has become fashionable to see rising insecurity as a natural consequence of the shifts in 21st-century work. But in Spain, at least, it turns out it wasn’t an economic inevitability to which policymakers had to adapt. It was just a problem they had to fix. – Copyright The Financial Times Limited 2023