It is well known that the rights and regulations of European workers are well protected, but the dirty secret of the continent is that they do not extend to all. Countries such as France, Spain, Italy and Portugal have long had isolated insiders who are difficult to fire and insecure outsiders who switch from one temporary contract to another. Inevitably, young people are most likely to be stuck on the outside: 37% of eurozone workers under the age of 30 are on temporary contracts.
But now Spain – the paragon of precarious work – is trying to stop this. So far, its efforts look very successful.
Europe’s internal-external labor market dates back to reforms in the 1980s, 1990s and 2000s that made it easier for employers to use flexible contracts, but kept strict protections for those who work permanently.
Temporary work is not inherently problematic. Employers clearly need some flexibility to deal with seasonal ups and downs and other unplanned events. They can also help young people and job seekers get their first foothold in the world of work. But when they become too common, they can be more of a trap than a stepping stone, keeping young people from moving from one fixed-term contract to the next without access to decent training that would improve productivity.
By 2018, the OECD concluded that widespread temporary work “tends to have a limited impact on improving employment opportunities for vulnerable groups” and is associated with “sacrificing long-term employment, reducing the quality of jobs, slowing the transition from temporary to permanent work, and increasing long-term labor market inequality. “. This is most evident in Spain, where for most of the last decade, the proportion of young people under 30 on temporary contracts has been over 50%.
That is, until last year, when Spain’s left-wing government set out to “restore workers’ rights without harming businesses” in a deal that has been repeatedly discussed with employers and unions. The new rules, which come into force in 2022, aim to end the use of back-to-back temporary contracts and make new permanent jobs the rule rather than the exception. A new “open contract for intermittent work” was introduced for employers in the seasonal sector, under which employees will remain with the company at the end of the peak season and will be recalled when demand resumes.
Jorge Uxó, professor of economics at Complutense University in Madrid, told me that the impact of the reform has been “very positive” so far. The proportion of employees on temporary contracts fell from 26 percent in 2021 to 18 percent at the end of last year, not far from the eurozone average of 14.6 percent. For those under 30, the proportion fell from 58% in 2021 to 39%.
This did not happen through mass layoffs of temporary workers – as was the case after the 2009 crash – but in the context of overall job creation. From the fourth quarter of 2021 to the fourth quarter of 2022, the number of workers on temporary contracts declined by 1.2 million, while the number of workers on permanent contracts increased by 1.6 million.
This should also be beneficial to the broader economy. Bank of Spain research shows that those on temporary contracts in Spain tend to have a smaller share of income compared to those on permanent contracts. The Central Bank says the increase in the number of workers in stable jobs should help increase household spending.
There are some caveats. It can be argued that the new “intermittent open-ended” contracts are not much better than temporary contracts, since those who sign them still do not have a stable income. In contrast, Uxó and other economists say they do give workers more rights, and in any case only a small part of the new permanent contracts.
The bigger question is what happens next. Spain still has a fairly high share of temporary jobs, and the reforms have not yet endured the economic downturn. It is too early to tell whether they will improve training and productivity in the long run. Rafael Doménech, head of economic analysis at Banco de España (BBVA), said that so far “the balance is positive” and demonstrates the “flexibility and ability of companies to adapt” to the new rules. “flexibility and ability” to adapt to the new rules. “But there are many other aspects that are still up in the air.”
Nonetheless, there may be a larger lesson here. In the past decade, it has become fashionable to see rising insecurity as a natural consequence of the 21st century job transition. But in Spain, at least, it has not proven to be an economic inevitability to which policymakers must adapt. It is simply a problem they must address.
