Labor Market Analysis in Spain: Unemployment and Economic Costs - Prof. 2402, Resúmenes de Administración de Empresas

¡Descarga Labor Market Analysis in Spain: Unemployment and Economic Costs - Prof. 2402 y más Resúmenes en PDF de Administración de Empresas solo en Docsity! Fecha CHAPTER 7: LABOUR MARKET 1. INTRODUCTION When a country’s labour market fails to operate properly both economic and social major costs appear. Economic costs refer to the loss of potential production, while social costs mean that high unemployment increases differences among social groups, thus social cohesion. Factors like legal regulations, social institutions, collective relations and personal assessments have a higher importance in labour market than in any other. Hence, in the study of Employments these factors must be taken into account. 2. CHARACTERISATION OF THE LABOUR MARKET IN SPAIN Performance of labour market from mid-1980’s until 2011 presents two main features: ▪ Increase in the labour force Exlained by and increase in the working-age population (demographic factor) and by the advance in activity rate, specially among women. Present crisis lead to a stagnation of labour force. ▪ Rhythms of creation and destruction of emploment Period of intense creation of employment from mid-90’s until 2007, making a contrast with sharp destruction periods during crisis of 2008 (until 2012) and 70’s and 80’s crisis. Job creation affected mainly construction and tertiary activities. Differential features of the Spanish labour market in comparison with other European countries: -Growth up to 2007 reduced unemployment until levels close to EU average. -Crisis meant a higher increase in unemployment in Spain. -High rate of temporary contracts and low presence of part-time workers. Regarding 2011 unemployed population (characteristics): -Youth unemployment is twice the average unemployment rate due to the growing difficulties to access employment. Reduction of birth rate since the 70’s, new types of contracts and an extension of the educational period had promoted a reduction during the long expansive phase. After 2008, destruction of employment was 2 focussed on temporary contracts, so youngsters where the one more affected by it. -The higher level of education, the lower the unemployment rate. -Different incidence of unemployment depending on nationality. Higher unemployment rate for immigrant population. -Differences between unemployment rates of the Regional Communities: 12% in Navarra; 30% in Andalusia. Two thought come to mind from all this: 1. Economic policy fundamental objectives should include increasing the economy’s capacity to generate jobs, access to the labor market for young population and improve the qualification level of unemployed. 2. Despite regulatory changes rolled out, high rate of temporary work in the labor market is still a milestone for the Spanish economy. There is a clear duality between the employed. 3. THE INSTITUTIONAL FRAMEWORK OF THE LABOUR MARKET AND ITS REFORMS We an distinguish 4 different stages by analysing institutions present in the Spanish Labour Market. -During 60’s and 70’s labor regulation was subedited to the political system, so that both unions and trade associations were illegal. This drove to great wage flexibility, which was off-set by very high dismissal costs. - From the late 1970’s to 1984 intervention and regulation were greater than before. The workers’ Statute (1980) tried to establish a regulatory framework similar to those in other European countries, driving the role of the recently legalised unions in the collective bargains of wages. -From 1984 to 1992, reforms to facilitate the creation of employment were accepted. -After 1992 a new phase started by attempting to make the labor market more flexible. These reforms were nor strong enough. Labor reform of 2012 is the most extensive and more profound carried in the Spanish economy, introducing modifications in several areas of labor regulation, mainly in collective bargaining and cost of dismissal. The basic aspects that have focussed the attention of the different labor reforms can be synthesised as follows 1. MODALITIES OF EMPLOYMENT CONTRACTS 5 others concerning the attitude and characteristics of unemployed workers. As for setting wages, we must recognise that bargaining power of workers was considerable, due to a large extent to the collective bargaining method. About the attitude of unemployed workers it’s important to know that two aspects: 1)the low intensity of their search for a job, and 2) their imperfect match with the necessities of the productive apparatus. -The low intensity of the search for a job by the unemployed is explained by: ▪ Most of the unemployed had no family responsibilities (as unemployment hit young people the hardest) ▪ High percentage of the unemployed were long-term unemployed; the longer a person is unemployed, the less intense the search for a job is (discouragement effect) and also the most difficult it is, as obsolescence of skills increases in time. ▪ The generous benefits received while unemployed acted as a negative incentive in the search of a new job. -The poor match of unemployed with the demand for labor market arising from two kinds of mismatches: ▪ The qualification mismatch: Large presence of unemployed without any schooling level attained or with primary or without any previous experience (Young). ▪ Geographic mismatch: Inter-provincial differences in the unemployment rate. In the short, for most of the decade 1985-1994, the institutional framework was particularly inadequate, reducing only slightly the impact of unemployment on real wages, given that it fostered a long duration of unemployment, a low intensity of the search for employment, a limited match of the unemployed with the job vacancies and strong bargaining power insiders. 4.2 INTENSE JOB CREATION AND REDUCING UNEMPLOYMENT After 1995, the Spanish labor market showed a notable improvement. There was vigorous job creation, which could be covered by a large increased labor force (6 million divided almost equally between women and immigrants). Immigrant participation was very important to cover demand for labor in the sectors like construction; hospitality and domestic work. One constraint on this process was that the share of temporary employment remained very high despite the legal reforms. The nature of most of the new jobs created was temporary, same were the new contracts and also the work permits for recently arrived immigrants. In any event, lots of jobs were created, which allowed for a substantial reduction in unemployment with a fall in unemployment rate of 16%. More importantly: This was NOT just a cyclical fall; it was accompanied by a highly significant fall in structural 6 unemployment. This fall is explained by the positive supply shocks that the Spanish economy benefitted from during this period and by the labor reforms enacted. The reduction in unemployment benefits must be highlighted too, as other factors such as the responsible attitude of the unions in a framework of social dialogue, the environment of low inflation and downward pressure on wages arising from the arrival of immigrants also helped to moderate wages. In short, a framework of high economic growth after adopting the Euro, together with a new, far more moderate scheme for wage setting and a credible anti-inflationist economic policy, structural reforms in the services and labor markets and the entry of numerous immigrants resulted in stability in real wages, high business profitability, growing investment, intense job creation and reduction of unemployment (including its structural component). 4.3 THE IMPACT OF THE RECENT ECONOMIC CRISIS ON THE LABOR MARKET: DESTRUCTION OF UNEMPLOYMENT AND INCREASE IN UNEMPLOYMENT Economic criis in 2008 came as a shock to the labor market. In the recessive environment, the destruction of employment has been highly intense, focussing precisely on the constructon sector, manufacturing industries and services related to consumption. The loss of employment affected mostly workers with fixed-term contracts, as a result, the share of temporary employment has been reduced, confirming a certain cyclical profile for this variable. In Spain the increase in unemployment rate has been especially intense, reaching 27% at the beginning of 2013, twice the european average. Job destruction and increase in unemployment are obviously related to the excessive growth of the construction sector prior to the crisis. It is even more linked to the facilities given to made the adjustment via the quantities that temporary contracts represent and especially, the rise in real wages during the early years of the crisis. The rigidities of collective bargaining mechanisms have prevented wages from adjusting rapidly to the new economic conditions (fall in production, employment and prices). This out-of-synch behaviour of wages required an urgent labor reform such as the one approved in 2012 in order to make the determination of wages more flexible and to open up alternatives to the quantity adjustment of jobs. During the present crisis, the unemployment rate has grown to exceed the structural unemployment level (NAIRU). This is coherent with the widely accepted idea that most of the recent unemployment is temporary, keeping in mind that both the sectorial impact and the duration of the crisis generated another increase in structural unemployment. ▪ Structural unemployment has risen as a consequence of the major increase in long-term unemployment. Effects of long-term unemployment in the form of discouragement and obsolescence translate into lesser intensity in the search for a job and a greater qualification mismatch, which ends up reducing sensitivity of wages to unemployment-already insufficient- even further. ▪ The increase in labor market mismatches; not only because of knowledge obsolescence (1) among long-term unemployed, but also because most of the 7 new unemployed during the crisis, only have primary education or compulsory secondary education. And also a new sectoral and skill mismatch(2) between unemployed from the construction sector and the requirements of the-still scarce- job vacancies offered by employers in dynamic sectors. Finally, a new geographic mismatch (3) caused by the fall in house prices, which curbs geographic mobility of the unemployed to head for recovering areas, as that would involve selling their current houses with the consequent loss of wealth. The most recent estimates of the OECD point out that the structural unemployment rate has increased between 2007 and 2012. We can expect structural unemployment to fall with the labor reform of 2012, because it will reduce bargaining power of insiders. It is estimated that, particularly, more decentralised collective bargaining can importantly reduce the structural unemployment rate. In order to reduce structural unemployment even further, active labor market policies must be reinforced, rather than passive one, to reduce long-term unemployment.