Analysis The Center Can Hold

“Repeal” of Spanish Labor Reforms Is Limited

Trade unions and the socialist government meet employers halfway.

Yolanda Díaz María Jesús Montero José Luis Escrivá
Spanish labor, finance and social security ministers Yolanda Díaz, María Jesús Montero and José Luis Escrivá give a news conference in Madrid, May 27 (La Moncloa)

Spanish employers and trade unions have done a deal with Pedro Sánchez’ socialist government to overturn several labor reforms of his conservative predecessor, Mariano Rajoy.

I argued against repeal. Rajoy’s liberalizations helped bring down unemployment, from a peak of 26 percent to 14 percent before the pandemic, and encouraged business growth. They allowed companies to opt out of collective bargaining agreements and expanded trial periods for employees.

The reforms did not create more precarious jobs. The share of part-time, temporary and self-employed workers has barely changed in a decade.

Temp work will nevertheless be restricted. Luckily the rest of Sánchez’ changes are mild.

What will change

  • Collective bargaining agreements remain in place unless and until employers and trade unions renegotiate.

This was the case before 2012, and it created perverse incentives: for employers to refuse better terms in good times and for unions to refuse cuts in bad times. Under Rajoy’s rules, collective bargaining agreements expired after one year.

  • Wages are determined by sectoral, rather than business-wide, agreements.
  • Sectoral bargaining agreements are applied to (sub)contractors.

This restores bargaining power to trade unions and makes it virtually impossible for companies within an industry to compete on wages.

They retain the right to flexible working hours. Employers can also still negotiate overtime with their workers without involving trade unions. This has made life easier for especially small and medium-sized firms.

Average salaries in Spain have barely risen in twenty years. Sánchez earlier classified “gig economy” workers as employees and raised the minimum wage to €13,500 per year.

  • Temporary work contracts are limited to ninety days in the year.
  • Temporary work contracts are only allowed for “production circumstances” (for example, a seasonal activity) and in case of “worker replacement” (when a full-time employee is temporarily unavailable due to pregnancy or illness).
  • Workers are automatically considered employees after working eighteen months for the same company in a two-year period, up from 24 months in a period of thirty months.
  • Trainee contracts are limited to two years for workers under the age of 30 and one year for older workers.

A left-wing proposal to cap a company’s share of temp workers at 15 percent did not make it.

  • Severance payments remain limited to the equivalent of 33 days of pay for every year of service.

Prior to 2012, it was 45 days. Rajoy’s changes brought Spain in line with its more prosperous Western European neighbors.

  • ERTE is made permanent.

Introduced during the pandemic, and modeled on Germany’s successful Kurzarbeit, the policy allows companies to reduce working hours or altogether dismiss workers during an economic downturn with the government making up the difference in wages. This has avoided layoffs on the scale of the last economic crisis, when one in four Spaniards were out of work.