A record year for jobs and better quality ones

Job centre in an office building in Madrid, Spain
Employment office in Madrid, Spain. Photo: Daniel Lobo (Public domain)

The number of people in employment last year reached a record high, but Spain’s jobless rate is still almost double the EU average.

There were a record 21.26 million jobholders at the end of September, according to INE’s quarterly survey, 1.3 million more than at the end of 2019, before Spain’s first case of the COVID-19 virus was reported in January 2020. The full-year figure (to be published at the end of this month) is unlikely to be very different. Spain’s job creation (+7.2% compared with pre-pandemic levels) outpaced France’s 5% and Germany’s 1.4%.

The seasonally-adjusted unemployment rate is just under 12% (2.8 million jobless), far from the peak of 26% in 2013 during the Great Recession but also from the low of 8% reached in 2007 at the height of the construction-led boom (see Figure 1). Youth unemployment (under 25) stands at 28%.

Figure 1. Seasonally adjusted unemployment rates, 2007, 2013 and November 2023 (%)

Source: Eurostat.

The economy has gained traction since output (GDP) returned to its pre-pandemic level in the middle of 2022, after plummeting 11.2% in 2020, the steepest fall in the EU, spurred by a recovery of consumption, record exports and a strong recovery in international tourist arrivals. GDP growth was around 2.4% last year, well above the EU’s 0.6%. Of the 720,000 jobs created in the year to September, 682,400 were in the services sector.

As well as more jobs, their quality has improved, following the 2021 labour market reform (the seventh package since 1994) that came into full effect in March 2022. This has significantly reduced the overall temporary employment rate, one of the most pernicious elements of Spain’s dysfunctional labour market, which mainly affected young adults, from 25% in 2018 to 12.5%, in line with many other EU countries, though it is much higher in the public sector (estimated at up to 30%).

This was the first reform after more than 40 years of attempts that has proved to be effective against fixed-term employment. Previous reforms tried to restrict the use of temporary contracts by raising their termination compensation, limiting their duration or penalising the roll-over of contracts, but with little success.

The reforms, agreed between the government, trade unions and employers, reduced the number of contracts to three –open-ended (permanent, the default option), fixed-term temporary (for specific reasons) and training–, and kept in place many of the changes introduced in 2010 and 2012. These included employers’ unilateral ability to make substantial changes to employment terms for economic, technological, organisational or productive reasons, which helped safeguard jobs.

The reform toughened temporary hiring terms and conditions, a system widely abused, set limits on how long temporary contracts can be used, penalised their successive rollover, banned project-based contracts, which lasted only until the project was completed, made fixed-discontinuous (intermittent open-ended) contracts more versatile and reinstated the primacy of collective sectoral agreements over company-level agreements for setting wages, a continued rigidity for those firms whose circumstances make it harder for them to afford the collective agreement.

Although intermittent open-ended contracts are permanent contracts, they are used for seasonal work, by temporary employment agencies or in contracting and subcontracting. They can be used for days, week-ends, months, quarters, years or any specific period.

Almost 16% of employed social security contributors in 2022 were on temporary contracts, the first year of the reform, down from 22.5% in 2021, and 58% of the jobs created were temporary compared with 83.7% (see Figure 2).

Figure 2. Yearly employment figures

YearAverage Social
Security affiliation (mn)
% temporaryJobs created (mn)% temporaryJobs destroyed (mn)% temporary
Source: Social Security registers.

While temporary contacts were made more onerous, permanent contracts were left largely unchanged, thereby maintaining, albeit to a lesser extent, the divide between the conditions for the much more protected ‘insiders’ (open-ended contracts) and those for ‘outsiders’ (temporary contracts). Self-employed workers have also remained practically unchanged.

The cost of ending permanent contracts (both ordinary and fixed-discontinuous) was not changed and remains significantly higher than for temporary contracts, although most new contracts are now open-ended. The 2012 reform cut severance pay to 33 days pay per year worked from 45 days. The Círculo de Empresarios, the main business lobby, says it should be closer to the 12 days of other EU countries.

The reform has reduced ‘contractual’ temporary employment, but it has not succeeded in mitigating labour instability or curtailing what is known as ‘empirical’ temporary employment, characterised by workers experiencing short employment periods and frequent shifts between jobs and unemployment, according to the first assessment of the reform by a group of economists published by Fedea.

The report uses a novel database that covers workers affiliated to the Social Security, which tracks the creation and destruction of jobs. It is also the first study to use extensive high-frequency data to examine the dynamics of job creation and destruction. By leveraging real-time data, the study sheds light on the nature of precarious work.

The authors conclude that if the goal is to reduce ‘contractual’ as well as ‘empirical’ temporary employment all open-ended contracts needed to be made more flexible. This would make them more attractive to companies and encourage them to change the production model towards less seasonal or temporary activities with greater value added. By severely restricting the use of fixed-term contracts without any change in the flexibility of regular open-ended contracts, the reform has encouraged the use of other new variations of permanent contracts that offer less stability, such as the intermittent open-ended contract. The latter does not provide the same level of job security as traditional open-ended contracts, say the authors.

Furthermore, the substantial shift between contract types has so far come without much improvement in job duration or stability. The intermittent open-ended contract has a higher termination cost than the previous fixed-term contract, as well as greater legal protection, but due to their very short and intermittent nature a significant number of workers on them are likely to end in voluntary termination without incurring termination costs.

More time is needed for a complete evaluation of the reform, but a start has been made.