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Thursday, May 26, 2022

Employment Data Caution

Latest NewsEmployment Data Caution

One of the main goals of the reform being promoted by the Department of Labor is to reduce unwanted temporary employment in our labor market. Both the European Union and numerous studies indicate that the duality that exists in our labor market between the sector with open-ended contracts and the sector with unreliable contracts has not only contributed to the problems of social inequality, but also to productivity losses in the medium and long term. term, in addition to preventing the consolidation of stable life projects, especially for the youngest. The reform includes the practical elimination of temporary employment, reducing it to high-value time-limited situations, and opens the door to internal flexibilities through the RED mechanism (which integrates ERTE as a labor policy) and the use of intermittent fixed contracts.

The first results of the new legislation yielded very important contracting figures: half of the contracts signed in April this year were open-ended, a very high figure compared to the 12% achieved in April 2021. A survey of the active population, temporary employment in Spain, measured by the percentage of employees with a temporary contract, fell below 25%, which has not been seen since 2015, when Spain emerged from the financial crisis that ended hundreds of thousands of temporary jobs. In short, the effects of labor market reform indicate that the first results are moving closer to the desired goal.

However, one must be careful in the face of these data and avoid triumphalism. Over 60% of new indefinite contracts are part-time or intermittent contracts, which should lead us to create new metrics to adequately measure the volatility of our labor market. A worker hired indefinitely and fired after two or three months will receive higher compensation, but it will be difficult to characterize him as a permanent employee, despite the fact that he appears so in statistics and official reports. As long as there is a production system based on undercapitalized small and medium-sized companies unable to compensate for large fluctuations in their sales, the specter of labor force adjustment as a risk management mechanism will remain in place, with the added difficulty that this time we have there are no indicators that allow us to find out real temporary work, and not contract work, in our labor market.

In short, labor reform may have removed the institutional weaknesses that encouraged the abuse of temporary contracts. Efforts by the Labor Inspectorate in recent years to redirect fraudulent temporary contracts to indefinite contracts anticipated this conclusion. But we must be alert to the evolution of new quantities, such as the actual duration of signed contracts or the abuse of intermittent permanent employment. Ultimately, the weaknesses in our business structure and our labor market feed off each other. You will need to remain vigilant.


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