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Fatal Attraction

A few days after the expiration of the deadline agreed with the European Union to close the new labor reform, the CEOE remains rooted in its Numantine defense on the extended use of temporary employment in our labor market. His argument is not very new: the availability of a wide range of temporary contracts (TC) is what pulls employment in the recovery phases, forgetting that this practice is also responsible for the collapse of employment in recessions. That is why the 2012 labor reform failed to cut the temporary employment rate and will once again run aground if significant measures are not adopted.

Since the extension of the use of TCs to all types of regular productive activities in the 1984 reform, our business class (and the public administration with higher rates of temporary employment) has abused this type of contracting with very negative consequences for the rest. of the society; high unemployment rates, reduced productivity, low training due to excessive turnover, excessive wage inequality, low birth rates and threats to the sustainability of the pension system, among others.

The bubbles in the real estate sector in the past, and in the tourism and hospitality sector before the pandemic, are a vivid reflection that our business class only knows how to invest in projects that allow the massive use of these contracts. It is not only a question of the comparative advantages of the Spanish economy in these sectors (countries like Italy or Portugal, even Greece, have temporary employment rates between 10 and 15 points lower), but of the unhealthy roots of TC in the mentality of our businessmen.

The employer prefers to maintain the continuous rotation of TCs as the only known way to reduce labor costs in cases of staff adjustment. He fears legal uncertainty in the dissolution of indefinite contracts (IC) despite the fact that they are priced. The serious problems associated with the instability of this type of contract (25% of the TCs signed annually last less than a week) seem to matter very little, especially in sectors with barriers to competition imposed by the largest companies in the negotiation sectorial.

It should also be noted that, despite their proclamations against precariousness, the unions prefer to continue focusing on protecting wage earners with indefinite contracts (IC), which are what ensure their re-election in a collective bargaining system with clause erga omnes (unprecedented in EU countries), low representation of both parties (especially business) and low affiliation by workers. Therefore, cutting the Gordian knot of the fundamental problem of the labor market in Spain requires another class of politically feasible measures. In view of the present and future challenges facing our labor market, these measures must be bold, like big bang , rather than gradual.

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In these circumstances, a feasible proposal from the point of view of political economy would be to incorporate temporary contracts and work and service contracts (56% of the TC) to the IC category (12.5 million at present). In 2018, there were 262 thousand dismissed with IC and 150 thousand completed their TC. The former received an average compensation of 17,000 euros, while the latter received 1,130 euros. With these figures, the average severance pay in that year was 11,200 euros (= 17000x 262/412 + 1350×150 / 412). If 56% of the TC were to become IC (without changing the 12-day compensation for termination in some of the remaining TC, the average cost of dismissal of workers with IC that is equivalent to the average severance pay of 11,200 euros would be 15,770 euros, compared to the previous 17,000.

In order to calculate the new compensation, it has been assumed that the work and service contracts and eventual contracts have a duration one third less than those of ordinary ICs. Therefore, the compensation for objective dismissal would have to be reduced from 20 to about 18.5 days (= 20×15.77 / 17) of salary per year worked if all dismissals were of this nature. On the contrary, if only 50% of the dismissals were objective, then the reduction would have to be greater. Indeed, maintaining the 33 days for unfair dismissal, the compensation for objective dismissal that is cost neutral in this situation would be 14 days. However, this figure would increase to 16 days if the proportion of unfair dismissals were reduced to 25% (more clearly delimiting the causes of the objective dismissal).

This strategy of addressing the perennial problem of duality would be very useful to eliminate once and for all the excessive rate of temporary employment suffered by our economy. At a stroke of the pen, it would go from 26% to 10.4%, homologous with the neighboring countries. The proposals on the table of the current negotiation forget that, to be politically acceptable, they cannot lead to an increase in the current level of dismissal costs. These are still too high (for example, for a worker with 10 years of seniority, the average compensation is 28.6 weeks compared to 21.7 in Germany, 14 in Portugal, 8.7 in France or seven in the United Kingdom) . The realization of more precise calculations than those offered above is unavoidable to obtain the approval of the European Commission for the perception of NGEU funds. Only in this way would the fatal attraction felt by our businessmen and other social agents for “bread for today and hunger for tomorrow” to the detriment of Spanish society be eliminated.

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