Sunday, July 12, 2009

A 21st Century Swindle

Spain's trade unions and employers have been engaging in talks recently with the aim of agreeing measures to deal with some of the effects of the crisis. It was said that the discussions were going quite well and the government hoped to make an announcement soon concerning an agreement. Both sides had an understanding that they would not present any demands that they knew in advance to be unacceptable to the other. Then the main employers association had lunch with Partido Popular leader Mariano Rajoy, their representatives left directly from this lunch to a meeting with the trade unions and suddenly there were new proposals on the table.

The employers want what they call a 21st Century employment contract as well as a significant reduction in their social security contributions. The new contract would make it cheaper to dismiss employees as well as putting all new employees on what is effectively a two year probation period. Rather than a model for the 21st Century, it really takes things a step backwards towards the 19th. As for the social security contributions, for anyone who doesn't know how this script works I think I can help. Having achieved the reduction in contributions, the next step is for the same employers association to proclaim that the social security system is unviable and wouldn't it be a good idea if we let the banks take care of pensions. The talks, unsurprisingly, have now reached a dead end.


moscow said...


It will never stop to amaze me - this odd take on reality. I have lost count of the institutions and personalities that have repeatedly indicated Spain's labour market needs reforming. The IMF, the EU, the ECB, the Bank of Spain, the OECD, former socialist minister Solchaga, Almunia, Solbes, even Felipe Gonzalez. Clearly, they are all irretrievably mistaken, the poor sods - or perhaps they are just part of some murky neo-con conspiracy which aim is to seek to compete with China.....the chinese way.

I find the employers association's proposition actually quite reasonable, after one its aims is to scrap the short-term contracts, which I hope, Graeme, you will agree, are the real bugger in this story.

Two thirds of Spanish employees are on permanent 45/33 day compensation contracts. As far as I know, unique in Europe. Except for Germany. Perhaps the Germans can still) afford that.

Has anyone pointed out to you that this regulation was enacted during Franco's time. Let's face it: what we are talking about here is the scrapping of inefficient, unjust and irrational francoist(fascist) laws.

Pitty, the thick oiks - Fidalgo was the only one with a bit of a brain - heading the unions in Spain are stuck in some 1970's time-warp. The truth is, they are slowly digging their own grave.

Graeme said...

Hi Moscow, I'm afraid you're about to get another dose of my odd take on reality. I don't know whether you are one of these people who believe that reality is just about perceptions, and that you can change it just by changing the words you use to describe it, but let's get to the heart of the matter. A contract which offers almost cost free dismissal for the first two years is obviously going to do away with the other varieties of temporary contracts but it is clearly not designed to do away with the idea of firing people before they become permanent employees. Call it what you like, the reality of temporary employment for millions will not disappear with this contract, it will just be disguised under a new name.

The idea that the cost of dismissal has anything to do with the current economic crisis is frankly bizarre. Ask yourself why so many well educated Spaniards travel overseas to further their careers and then try and tell me its because they have too much labout protection in Spain. No prospects is more like the reality, as they get hired for the badly paid short term and are lorded over from the zona noble by some ignorant enchufao who has probably never had to look for a job in his (because it's almost always him) life. Or if you don't like the answer you get from yourself ask me why I quickly abandoned the idea of working for Spanish companies.

Here we are with the speculative roulette wheel starting to spin again for the benefit of the tiny few, and with the measures that were meant to deal with the causes of the crisis being quietly shelved - and you want to tell me the key problem is labour market legislation! We're not so far from the next bursting bubble so the movement in favour of creating the 21st Century pauper will soon be able to come back and ask for more. Workhouses perhaps?

Rab said...


I think you are being quite naïve here.

The cost of redundancy is not the key driver of a healthy labour market. Employers do not hire people on the expectation they will have to fire them.

The 2-year proposal will have the effect of most people being on a defacto 2-year probationary period. At the end of which, the employer will just terminate the contract, wait a few days (probably unpaid holidays) before offering another 2 year contract to the same employee –if he is lucky enough. A 2-year rolling contract, almost like a footballer, but at a fraction of the wages.

Unless, of course, the proposal incorporates this aspect of UK employment law, which I have not seen in this proposal. Happy to be corrected if I am wrong. In the UK, if a contract employee has worked for an employer for over 2 years, it becomes a permanent contract, with all the benefits of a permanent employee applied from the second year.

If the CEOE proposal has something along these lines, then it could be something to consider seriously. Otherwise, it is just a mickey-taking exercise.

Living in the UK, I think the Spanish labour market is already highly “flexible” (whatever that means), and employers have been abusing the system of interns (becarios) and temporary contracts for decades. That is why I left 10 years ago and I have not looked back. Like Graeme, I think it will be very unlikely I will ever work in Spain for a Spanish company unless there is a dramatic change in attitudes to training, promotion, flexible working, etc. I am no friend of the unions either (I do think they are a bunch of resentful arseholes for the most part), but I have zero sympathy for the CEOE. If it were up to them, they would introduce the “derecho de pernada”.

moscow said...

@Graeme, @Rab, it appears to me that we actually have some common ground to share here.

I agree that the 2-year contract is not the solution. But the only reason this has been put on the table (out of despair I guess) is that the unions and ZP have rejected to discuss more reasonable options.

The one favoured by most experts is a unique/single contract for all - say 20-25 days dismissal with 10-12 yrs accumulated compensation. This would be for all, therefore eliminating privileges for some and unfairness for others. By creating an even playing field for everybody, it would make competition and meritocracy more likely. I agree, this would not happen overnight. And it takes a moral shift of biblical proportions to eliminate the culture of enchufismo - maybe decades, maybe never, who knows?.

The above does not mean there cannot be further efforts to enhance social protection. By all means, do expand unemployement benefit, maternal and paternal leave. I would increase holidays up to 25 days a year like in the UK. I believe it improves productivity.

I also would point out, and in this I agree with ZP - partially - that this period in time might not be the best moment to discuss making dismissal less expensive. I can see that. But I believe that the CEOE, and all those experts are not suggesting changing all contracts at once. That is, those who are on 45 days/30-odd year contracts should keep them. For a while an unjust situation would persist, but only for a while.

Fair competition is also not boosted by keeping the collective bargaining system. Not even the French have it any more.

The CEOE are not the mother Theresa. And there is a fair deal of OPUS-facha types there, and in the PP. But not all business people are exploitative types. @Rab, I agree you don't hire people in order to sack them later. That would be self-defeating. But you have to hire them in the first place. And this is the problem in Spain. Employers don't hire enough people, or they do it the wrong way.

In my naivity, I believe change will come. If not, Spain will not be able to afford having the Euro, and the perks that come along with it.

moscow said...

Oh, and I agree the labour market is not the cause of the current crisis. But here the point is, why does Spain's unemployment rocket up whereas it remains more or less stable in other countries?
And here the answer is:
1) Because of the property bubble and the large size of the construction industry relative to the Spanish economy.
2) But also because of the inefficient labour market.

How do you get out of this?
1) One way is the socialist way, you invest in people, in new industries, new technologies, in others wors you put money on the table. ZP wants to do that, the problem is this is like turning a tanker around, it takes time (and money).
2) The other is to increase competition and productivity by de-regulation and liberalisation. This is what the neo-liberal right wants to do. Here the effect could be quicker to come, but it also could be disruptive because of the opposition of the unions.

My view is you do not AND&OR but you do AND&AND. Both schemes are necessary.

Rab said...

@ Moscow

I disagree with your second answer “But also because of the inefficient labour market”.

If you assume the labour market as a supply and demand market, then I argue that the Spanish job market is extremely efficient and flexible: employers hire/fire unrestricted to adjust to the economic cycle. This suits them fine and that’s why they have put a ridiculous offer on the table.

Perhaps it is the job market of other countries which is not flexible enough and thus there are artificial levels of high employment as employers do not have the flexibility to hire/fire people in temporary contracts. Thus, they have to be flexible in how to motivate and manage employees.

Or perhaps, here is a novel thought, European employers take a more long-term view on recruitment, training and employee management, rather than the narrow short-term thinking of most Spanish companies.

I take exception to the statement that investing in people is a “socialist” solution. I head a a small team and we invest a lot in employee training and development and we are not socialists. My employer spends about 10% of operating profit in Training & Development.

I also disagree with the second suggested solution. It is by no means clear cut that productivity rises as a result of de-regulation and liberalisation. If you visit the UK regularly and are unlucky enough to travel by train, you will know what I mean.

In my view, the role of politicians and legislation is often over-stated. We give too much credence to politicians, thinking they can really improve things by legislation.

The problem with the Spanish job market is not a legal issue. It is a problem of attitudes and behaviours of both employers and unionises employees and I don't see any solution to it in the short term.

Meaningful change will come from employers and employees that operate outside the sphere of influence of the CEOE and the unions.

moscow said...

Thanks for the lenthy answer.

I haven't been to the UK for 9 years, so I don't know what the state of British transport is nowadays. But let me say it was rubbish even when British Rail was still in existence. So, nothing has changed.

I once read, Dutch officials - Holland is one of the most liberal economies in Europe - could not understand the British government's refusal to invest in infrastructure. Short-termism is not exclusive of Spanish empresarios, although I agree fully that Spanish entreprenerus are still decades behind their European counterparts. I also agree that reforming legislation is no panacea, but it helps considerably, and I think it would be churlish to write-off completely the efforts to change things through political reform.

Furthermore, I do take part in your believe that real change will be slow, as it involves changing mental attitudes of business people and individuals, which takes time. Here the best chance for change, I believe, comes in the form of the Euro. If Spain wants to maintain its current standard of living - let alone raise it - then it will have to export more highly value-added products and services. And this will only happen if there is a fundamental change in the business culture.

When I wrote socialist, this was an over-simplification, what I meant is the PSOE or ZP.

As for the UK, I lived there for 10years, and I would be loath to consider it a model for Spain in almost anything - with few exceptions. I'd much prefer Holland, Germany, Switzerland or Denmark, even France, as role models.