Spain | Labor reform and temporary employment

Summary

Once the labor reform has been approved, the next step will be to evaluate its effects, although mostly they will only be seen in the medium and long term. The authorities must ensure that the fall in temporary employment does not come at the expense of lower growth in job creation.

Key points

• Key points:
• The labor reform should be evaluated in terms of its ability to raise employment and participation rates in the labor market, improve quality, reduce unemployment and increase the capacity of the economy to boost competitiveness and productivity, with more flexible, secure and efficient labor relations.
• Though it is difficult to separate the repercussions of the 2012 reform from other determining factors, the evidence shows that, on average, between 2014 and 2019, the temporary employment rate was 7 points below that of the previous economic recovery (between 1995 and 2007).
• Unlike its predecessor, the 2021 reform chose, in particular, to stiffen the terms and conditions of temporary contracts. In addition to establishing that all contracts are presumed to be permanent, RDL 32/2021 goes further in relation to the causation of temporary contracts, establishing limits to their duration and penalizing chaining.
• Much of the success of the reform to reduce the duality of the labor market will depend on whether contracts that have traditionally been temporary are channeled through permanent-seasonal contracts, which is more stable, does not break the link between employer and employee, enables the development of experience and helps stop productivity from falling.
• Given that the legal uncertainty and the cost of terminating permanent contracts remains higher than that associated with temporary ones, it is possible that some of the conversions may not occur and that some hiring of workers never takes place.

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