Spain | How to reduce working hours

Summary

Reducing the work week is laudable, but how we go about it is key to achieving the desired effects. Collective bargaining is the ideal instrument to adapt the needs of companies and workers to each business and sectoral reality, in an effective and flexible manner.

Key points

• Key points:
• Labor unions, employers' organizations, and the government, at the initiative of the latter, are trying to reach an agreement to reduce the maximum workweek by 6.25% within two years, from 40 hours to 37.5 hours per week.
• From an economic perspective, a reduced work week is one of the results of productivity increases. Over the past two centuries, as economies have become more productive, the number of hours worked per employee has been trending downward.
• Permanent productivity gains per employee, which represent a positive supply shock, allow workers and companies to negotiate the distribution of these improvements between wage increases or reductions in work time, without causing a spike in unemployment.
• However, when the reduction in working hours is caused by a regulatory change such as the one proposed in Spain, without a prior improvement in productivity or a proportional reduction in wages, there is an increase in labor costs, i.e., a negative supply shock.
• A study by BBVA Research estimates that the impact of this measure would imply an increase in unit labor costs of 1.5% by reducing the hours currently above the 37.5-hour week and would subtract around 0.7 percentage points from the average annual GDP growth over two years and 0.8 percentage points from employment growth.

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