Spain | Labor reform: lights and shadows

Seven months after its entry into force, the labor reform has many bright spots, but also some shadows. Continuous evaluation could prevent the reduction in temporary employment from being overshadowed by the increase in turnover and the partial nature of new permanent contracts.

Key points

• Key points:
• The outstanding growth of permanent contracts exemplifies the transformation that has taken place in the labor market since the approval of Royal Decree-Law 32/2021. The number of permanent contracts tripled in the first seven months of 2022 compared to the same period in 2019.
• The new legislation has simplified the multiplicity of temporary contracts and established limits to their duration and penalties for their chaining. As a result, temporary hiring fell by 39% through July. The decrease in the number of contracts of less than seven days, penalized by the additional contribution introduced by the reform, stands out.
• The main beneficiaries of the change in hiring patterns have been those under 25 years of age and those over 55. The number of open-ended contracts at the tails of the age distribution increased by a factor of four compared to 2019 and the number of discontinuous permanent contracts by more than eight times.
• But not everything is bright. First, there was a slight upturn in labor turnover in permanent employment. Secondly, the share of part-time work in permanent contracts has increased both in conversions and, above all, in initial contracts.
• In the medium term, the success of the reform will depend on its impact on productivity and employment intensity. In this context, the rise of discontinuous permanent employees is particularly relevant because they have traditionally worked fewer hours than other employees.

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