Spain | A "backpack" employment fund for permanent employment

Summary

As in Great Recession, the COVID-19 crisis has once again raised the debate about the excessive rate of temporary employment, thus rekindling interest in the so-called "Austrian backpack" employment fund proposal, which seeks to reduce the disincentives of permanent contracts regarding the cost of dismissal.

Key points

• Key points:
• This scheme involves an individual, permanent account for employees, which stays with them as they move between jobs. Throughout the employees' working career, companies would pay sums into this account toward the eventual cost of dismissal, which would have to be paid in the event that the contract is terminated.
• However, while the backpack fund reduces uncertainty regarding severance pay at times when companies are at their most vulnerable, it is not enough to significantly reduce the temporary employment situation.
• In addition to the greater organizational and productive flexibility that permanent employment offers (which is also essential for the public sector), it is desirable that the contribution to the backpack fund is greater for temporary contracts than for permanent contracts, at least for the first two years of the working relationship, under a bonus-malus-type scheme, without increasing the average cost of dismissal.
• The proposal by BBVA Research and the Sagardoy Foundation in 2014 was to only apply this principle to new contracts, so that the change is gradual, manageable and does not affect acquired rights.
• Young people and women would be the main beneficiaries of this measure, as temporary contracts are more common among these groups, and also because age would not be the criteria for choosing who to dismiss in the event that the dismissal was unavoidable.

Geographies

Topics

Tags