Dealing with Spain’s Labor Rigidities

The Wall Street Journal editorial has some interesting insights, particularly facts (marked by bullets) and micro based recommendations in resolving Spain’s rigid labor markets.

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• After Cyprus, Spain ties with Malta for the most public holidays (14) in Europe. The Spanish Workers' Statute also guarantees 22 days of paid vacation annually, 15 days to get married and two to four days when anyone in an employee's family has a wedding, birth, hospitalization or death.

Mr. Rajoy has tried, with only moderate success, to tweak the public-holiday schedule and discourage "bridge" weeks—when, say, the Assumption of Mary falls on Wednesday and your entire staff takes off Thursday and Friday too. But if Mr. Rajoy wants a reform that would also be popular, why not ditch the statute's clause that bars employees from trading vacation time for extra pay? If Spaniards could earn greater rewards for taking fewer holidays, they might eventually want to scrap state-mandated vacations.

• Sick employees can get most or all of their wages for 18 consecutive months if they have a doctor's note. An employer could opt to fire chronically ill employees—and pay up to 24 months of guaranteed severance. That's excessive. Then again, the mandatory national insurance to cover sick wages, severance pay, health care and so forth takes 39.9% from the gross average Spanish wage.

Mr. Rajoy has trimmed unemployment benefits and pledged to reduce compulsory "social contributions" by one percentage point next year and another in 2014. He could do much better by letting Spaniards opt out of some entitlements entirely, such as paternity pay or child-care coverage. Spain would be a far better place to work and hire if its laborers and businesses could choose how to spend more of what they earn.

• Spain's 52% youth unemployment remains the subject of countless government training programs and tax exemptions for businesses hiring those under age 30. The programs don't work but they are expensive.

A free alternative: Repeal the Workers' Statute clauses that forbid most trainees and apprentices from earning less than 60% of the wages of full employees and from working more than 85% of a regular shift. It's harder to hire young people if you know you'll get much less work out of them for not much less pay.

Mr. Rajoy could also expand the one-year period during which businesses may dismiss new employees without severance. This only applies to firms with fewer than 50 workers, which helps explain why 99% of Spanish companies have no more than 49 employees of any age.

• Once a Spanish business reaches 50 employees, its workers must also elect five workplace reps to bargain on wages and conditions. These delegates must each receive at least 15 paid hours off monthly for their duties, and the quotas rise as companies grow. By the time a business hires its 751st staffer, it must have at least 21 workplace reps, each getting a minimum of 40 paid hours off per month.

Eliminating these costly sops and letting workers negotiate individually would no doubt provoke a declaration of war from labor bosses. So what? Fewer than 16% of Spaniards today opt to unionize, and far fewer than that join in already-frequent union demonstrations.

Read the rest here

From the above, one can see that the predicament of Spain’s competitiveness has scarcely been about the adverse effects of a “strong” currency, but because of the compounded negative side-effects of suffocating regulations, the barnacles of bureaucracy and the unwieldy welfare state.