He banco of Spain estimates that The contracts that have been created after the 2021 labor reform are more stable than the labor relations prior to the regulatory change. The turnover rate of Spanish workers is now somewhat lower than in the pre-reform years, because many positions that were previously created through temporary contracts are now formalized as permanent ones, which tend to be longer lasting. However, although it may seem paradoxical, those same indefinite contracts are now more unstable than when the reform was approved. The turnover of permanent workers has increased and has done so especially among workers discontinuous fixed.
This follows from an analysis carried out by the Bank of Spain made public this Tuesday, in which the banking supervisor dissects the latest events in the Spanish labor market. The banking regulator is cautious and clarifies that its investigation does not attribute these changes to the labor reform. However, the dates that he has chosen for his analysis do allow us to compare what stability was like before and after the reform.
The labor reform approved at the end of 2021 has brought a significant decrease in temporary contracts. The percentage of employees working on temporary contracts has fallen from 25.4% before the new rule came into force to 16.5% at the end of 2023, a rate increasingly similar to the European average. That temporary employment has fallen drastically since the reform came into force is beyond any doubt. What is not so clear is that this decrease has translated into more stable jobs after the approval of the reform.
To measure employment stability, the Bank of Spain analyzes what percentage of the country’s employees have rotated since March 2022 and how many did so in the period before the reform. The conclusion is that The turnover rate was, on average, 1.12% between 2022 and 2023, compared to 1.33% registered in the period 2015-2019. The reason why this rotation has been reduced, explains the banking supervisor, is that a good part of the contracts that before the labor reform were temporary, are now indefinite, which are more durable. To this we must add that the turnover of workers with temporary contracts has also been reduced, from 3.4 to 3.19%.
However, it also seems that after the labor reform, permanent contracts are less stable than before. Specific, The turnover rate for permanent contracts has increased from 0.25 to 0.61%. A phenomenon in which the high withdrawal rate of discontinuous fixed contracts plays a fundamental role. According to estimates by the Bank of Spain, the withdrawal rate of these workers has doubled after the labor reform: it is now around 2%, compared to 1% prior to the norm.
Another of the metrics that the banking supervisor looks at to know how stable employment is is How many of the contracts are still alive a year after signing. In this section, the analysis goes along the same lines as the rotation. The data indicates that 16.1% of labor relationships started in March 2022 were still alive a year later. A percentage higher than the 11% on average that was recorded in 2017 and 2018. But the lower stability of permanent workers is also reflected in the data. Thus, 48% of the permanent contracts signed in March 2022 were still alive a year later, compared to 52.5% that was registered before the labor reform.
Weak productivity and high unemployment rate
The report made public this Tuesday devotes several pages to analyzing the behavior of the labor market last year. A year marked by strong employment growth, but marred by weak productivity growth and a unemployment “excessively high.”
Spain added 783,000 new jobs in 2023, which – added to those created since the pandemic – total 1.28 million jobs. The Bank of Spain points out that the recovery in employment after the pandemic has been similar to that of the EU as a whole. Besides, clarifies that part of the strength of the labor market has been due to public employment and the arrival of migrants. Specifically, they point out that from the beginning of 2022 to the end of 2023, half of the employment generated was due to workers of foreign nationality.
The Bank of Spain also highlights that Productivity per hour worked – that is, the added value generated by each hour of work – has barely increased by 0.8%. This is important because the medium and long-term growth of the economy depends on how productivity evolves. Also the evolution of salaries, which tend to grow more in the most productive economies.
But The country’s biggest labor problem continues to be unemployment, which the Bank of Spain describes as “excessively high.” The unemployment rate in Spain stood at 11.8% at the end of last year, double the EU average. Furthermore, in groups such as young people the percentage of unemployed reaches 28%. The Bank of Spain maintains that a good part of the unemployment suffered by the country is structural, which makes it significantly difficult to reduce the country’s unemployment levels. Given this situation, the supervisor sees it as a “priority” to review the country’s employment policies. Especially if we take into account that the labor market is in full digital transformation and with the challenge of demographic aging on the horizon.
