LABOUR LAW

Spain Labour Law

[Institution Name]

Spain Labour Law

Introduction

Spain's economic woes are triggering renewed fears over a potential default in the euro area, and much of the blame belongs to labour laws that date back to the dictatorship of General Francisco Franco. Unless the government succeeds in changing them, it's hard to see the country returning to healthy growth even if it manages to stay solvent.

Spain is by now notorious for having the highest unemployment rate in the European Union, especially among the young every second Spaniard under the age of 25 is looking for a job. It would be simplistic, of course, to attribute Spain's severe economic contraction and rampant unemployment to any one cause, but the labour market is a useful place to start. It has taken the financial crisis to force an ambitious attempt to address the problem.

Franco's camp introduced the foundations of the existing labour laws in 1938, when the Spanish Civil War was still being fought. The new legislation was heavily influenced by Mussolini's 1927 Carta del Lavoro, and was bolstered by additions in the 1940s and '60s and, toward the end of Franco's rule, in the '70s. Remarkably, much of that legislation remains in effect today.

Spain's Labour Market Profile

The International Monetary Fund has described Spain's resulting labour market as ”dysfunctional.” The World Economic Forum's latest Global Competitiveness Report ranks Spain's labour market 134th out of 142 countries, pointing to labour-market rigidities and the gap between wage setting and productivity levels as an important cause of Spain's slide down the overall index in recent years (Wooldridge, 2002, pp. 113).

Franco's labour laws offered workers rock-solid job security and strong collective-bargaining rights. These were critical elements of welfare systems that were adopted by fascist -or national socialist- regimes around Europe, as they sought to maintain social harmony in the absence of democracy. Changing them has been a critical test of maturity for Spanish democracy since its establishment in 1977, and successive administrations have failed (Wöessmann, 2003, pp. 117). Contrary to what you might expect, it's the political left that has been most opposed to changing laws that were adopted during Franco's fascist dictatorship.

Maintaining the status quo was understandable and even laudable during Spain's post-Franco transition, when the country still fearful of slipping back into the deep divisions of the civil war sought a consensus that would help to consolidate democracy while the economy was weak and jobs were scarce.

Attempts at reform were made, but most were minimalist and ad hoc, aimed at facilitating employment by indirect, partial and even surreptitious measures (Saint-Paul, 1997, pp. 499). The strategy, until the first conservative government under Prime Minister Jose Maria Aznar came to power in 1996, was to create a parallel labour market, based on temporary contracts. These allowed employers to avoid the rigidity of indefinite contracts, making it easier and cheaper to fire employees by addressing issues such as termination costs, restrictions and procedural duration, among others (Mortensen and Pissarides, 1994, pp. 397). The result was a ...