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Labor Market Reforms in Spain After the Crisis

0 Comments 🕔08.Aug 2016

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This article is part of our feature Policy-Making Under the Troika.

by Elisa Pannini

When the housing sector collapsed in 2008, Spain entered a deep recession period that contrasted starkly with the glaring performance of the previous years. At the time, the labor market was characterized by a widespread use of fixed term contracts, which were liberalized in the 1980s and already in the 1990s constituted 90 percent of the new contracts (Dolado et al. 2002). When the crisis hit, the highly flexible workforce shrank dramatically, causing 52 percent of the total loss of jobs across Europe (Muñoz de Bustillo & Anton 2015).

The left-wing government in charge at that time, led by José Luis Zapatero (PSOE), struggled to manage the financial and debt crisis, and faced pressures by European institutions to implement austerity measures while trying to maintain the social dialogue with employers and unions. Since 2010 the requests to control public debt have tightened; thus, wage increases have been frozen, public salaries cut by 5 percent, and other significant measures taken in order to limit public spending. At first, some of these reforms were implemented with the agreement of the social partners. However, in 2010, the tripartite negotiations over the labor market reform failed and the government acted unilaterally. The PSOE, besides not having any support by the social parts, was isolated in the Parliament as well, where parties at its left and its right were equally unsatisfied by the proposed intervention.

The reform implemented in 2010 broadened the grounds for dismissals, eased firing procedures, and liberalized temporary work agencies; while making permanent contracts less rigid, it made some flexible contracts less attractive, as a mild attempt to reduce labor market dualism. The same year, the major trade union confederation called a general strike that didn’t succeed in changing any of the Government plans. In contrast, a few months later, the collective bargaining structure was decentralized, allowing company and plant-level agreement to derogate wages, and working conditions set at company level.

In 2011 the EU, ECB, and IMF interfered even more openly in the Spanish economic policy, while the anti-austerity protests became more relevant in national politics. In August 2011, the European Central Bank sent a “Secret Letter” to the Prime Minister asking, amongst other measures, for stricter wage moderation in the private sector, a new flexible contract, changes in the collective bargaining structure, and the introduction in the national constitution of the principle of budgetary stability. Before stepping down as Prime Minister, Zapatero managed to amend the constitution as required by the ECB, and in December the new right-wing government led by Mariano Rajoy took office.

The social dialogue suffered a further blow with Rajoy’s governments. The 2012 labor market reform was passed without any negotiations or consultations with the social parts. The priority of enterprise level agreements was reinforced; also, the “ultraactividad” of collective contracts, which made sure that workers were covered by the same level of wages and working conditions even after the “expiry date” of the collective agreement, was reduced from indefinite to a maximum of two years. After that term, all the acquired rights and conditions are repealed until the new agreements are signed, to the detriment of unions’ ability to negotiate in the long term. Moreover, the new “flexible” contract typology required by the European institutions was introduced with the “entrepreneur-support contract,” which is characterized by one-year probation period without any security, one of the longest in OECD countries. Additionally, the compensation for unfair dismissals was further reduced. This reform was criticised not only by Spanish workers who saw their protection and rights reduced at many levels, but also by a Committee set up by the ILO to examine the labor market reform, especially regarding the newly introduced contract. On the other hand, both the IMF and European Commission have praised the direction taken by this reform.

The process of labor market reforms in Spain after the crisis seems to have largely disregarded the role of social parts in shaping and implementing the new regulation, while weakening the collective bargaining institutions. The intervention of the Troika in requiring the implementation of austerity measures has been less apparent and coercive than in the Portuguese and Greek cases, where binding memoranda have secured the maximum possible compliance to its requests. However, the trend toward a labor relations model pushed by the Troika itself, through recommendations, letters and more or less soft suasion can still be easily identified.


Elisa Pannini is a PhD student in Employment Relations and Organizational Behavior in the Department of Management of the London School of Economics and Political Science.

This article is part of our feature Policy-Making Under the Troika.


Dolado, J. J., García-Serrano, C., & Jimeno, J. F. (2002). “Drawing Lessons From the Boom of Temporary Jobs in Spain.” Economic Journal, 112(480), 270–295.

Muñoz de Bustillo, R., & Anton, J.-I. (2015). “Turning Back Before Arriving? The Weakening of the Spanish Welfare State.” In D. Vaughan-Whitehead (Ed.), The European Social Model in Crisis (pp. 451–506). Geneva: ILO Publications.



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