Recipes to Create Employment

How to rebuild the labor market

18/06/2013 Madrid

Sandalio Gómez

Unemployment, productivity, contracts, collective bargaining and labor reform were all discussed at the session in the Continuous Education Program session titled “Rebuilding the labor market” held on IESE’s Madrid campus on June 17.

The session, organized by the Alumni Association, was part of the Economics and Society Cycle. IESE Prof. Rolf Campos acted as moderator.

Prof. Juan J. Toribio lamented the rigidity of the Spanish labor market, which he believes has a direct impact on unemployment. According to Toribio, this rigidity consists of a minimum inter-professional salary, collective bargaining, union pressure and restrictive agreements at company level, among others. “We have made some advances with reforms,” he said, adding that Spain was unable to adjust when it needed to and was now paying the price. 
A Luxury for the Rich

He believes that unemployment is “a luxury that only wealthy societies can afford” in the sense that only wealthy societies can afford to pay unemployment benefit. Toribio criticized the culture of fear generated by judicial rulings in labor relations in Spain and called for a more flexible labor market in order to reduce unemployment and create new jobs. He also demolished some myths, such as that technology destroys jobs. “Anything we can do to get rid of the restrictions that have brought us six million unemployed is positive,” he said.

Prof. Sandalio Gómez discussed the government’s labor reforms that were introduced last year. “It’s a deep reform and the best since 1994, but the effects are slow in coming. It is very difficult to create jobs in this climate and we can only do it if everyone is involved,” he said.

Gómez said a “cultural change” on the part of employers and workers was essential if the reforms are to bear fruit. He wanted the new law to go further to encourage part-time contracts and contracts that involve training and apprenticeships. “It’s astonishing that, in a country with 50 percent youth unemployment, such contracts aren’t more common,” he said.

During his talk he criticized the prevalence of collective bargaining in the labor market, which he says slows down further reform. In spite of improvements, Gómez was in no doubt that “labor reform won’t solve the unemployment problem” and suggested other measures, such as encouraging entrepreneurs, further control of unemployment benefits and possibly doing away with the minimum wage.

He also suggested that redundancy payments should be reduced to 20 days per year worked with a ceiling of one year, as well getting rid of judicial proceedings in changing labor conditions and redundancies, both individual and collective.