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Labour Market Policy in Europe . Facing the Economic Crisis. The case of Spain

Labour Market Policy in Europe . Facing the Economic Crisis. The case of Spain. Rafael Muñoz de Bustillo. Characteristics of the economic crisis in Spain. Comparatively “mild” in terms of lost GDP But strong reduction in construction Gargantuan reduction in employment

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Labour Market Policy in Europe . Facing the Economic Crisis. The case of Spain

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  1. LabourMarketPolicy in Europe. FacingtheEconomic Crisis. The case of Spain Rafael Muñoz de Bustillo

  2. Characteristics of theeconomic crisis in Spain • Comparatively “mild” in terms of lost GDP • But strong reduction in construction • Gargantuan reduction in employment • Large trade deficit

  3. GDP growth

  4. GDP and construction rate of growth (%)(seasonally adjusted): 1996-210(3rd q.) Source: Coontabilidad nacional de España, INE

  5. Source: Eurostat

  6. Employmentelasticityto GDP, 2008-2009 (∆% Employ./∆%GDP): the crisis

  7. …and after Source: Eurostat

  8. Currentaccount balance (% GDP)

  9. Policy • Stage I (2008-9): Countercyclical policy based on • Automatic stabilizers • Ad-hoc discretionaryincrease of expenditure in employment intensive sectors. • Plan-E (Spanish Plan to Stimulate the Economy and Employment): fiscal stimulus through small scale public works, mostly run by local governments • Maintenance of social expenditure • Extension of unemployment benefits (6 + 6 months) • Ad-hoc flat income tax rebate (400€ per tax payer) + Funds for the restructuration of financial institutions (banks and saving banks).

  10. Unemployed workers receiving unemployment compensation (all sources) as percentage of all unemployed : 1978-2011 (1st Q.). Source: MTIN, INE

  11. Stage II. The great U turn. Priority is given to: • (a) Reduction of public expenditure and increase of revenue in order to accomplish a very intense reduction of public deficit from 11.1 to 3% in 4 years (2010-2013). • 5% reduction of wages of public employees. • Increase in VAT (from 6 to 8% and from 16 to 18%) • Elimination of the €400 tax rebate, increase in marginal income tax rate (from 43% to 45%, +175.000 euros), phase-out of housingtaxcredits. • Freeze on increase in retirement pensions in accordance with the CPI in 2011 • (b) Pro-market labour reform. • (c) Pension reform

  12. Fiscal Policy: Spain vs EU(27) % GDP Source: Eurostat

  13. Fiscal Policy: Spain vs. Germany % GDP Source: Eurostat

  14. Fiscal Policy: Spain vs. UK Source: Eurostat

  15. Results: • Stagnation of theeconomy, nowonlyfueled (ifmildly) byexports. • Estimates of the fiscal consolidation: -2.2 percentagepoints in 2011 and -1.5 in 2012 IMF (2011): regional Economicoutlook. Europe, p. 22

  16. (b) Labourreform • Reduction of dismissal costs and criteria. • Reform of the collective bargaining system, in particular to allow firms to opt out of collective agreements. • Reinforcement of active labor market policies, and enhanced links between vocational training, businesses, and the general education system. • Reduction in payroll taxes for part-time employment of the young and the long-term unemployed. • Reduction of the promised increase of MW (800€ by 2012, instead 641,40€ after 2011 rise)

  17. A primer on dismissal costs • The previous “boom” and the crisis shows that the Spanish market is quite flexible (external flexibility)* Source: Eurostat * In 2007 16.6 millions of labour contracts were signed (total number of employees: 18.6 millions )

  18. Source: Encuesta anual de coste laboral. INE

  19. Dismissalcosts as % of total labourcost . UE, 2004 Source: Eurostat

  20. OECD EmploymentProtectionLegislationIndex, EPL: Anotherparadox? Source: OECD Destruction of employment by type. Spain 2008-2010 QIII Source: LFS, INE

  21. Temporaryemploymentratebyage. 2008 1Q Huge rise in youth unemployment Temporaryemploymentrateby sector. 2008 1Q

  22. Open ended contract ≠ contract for life. • According to our analysis of longitudinal data, in 2007, at the height of the economic boom, around 42% of unemployed workers with previous work experience had had a full time open ended contract in the past. • According to Toharia and Cebrian (2007), 41 per cent of permanent contracts signed in 2004 were not still valid one year later

  23. With the reduction of redundancy payments we will create million of frightened jobs

  24. (b) Labour reform • Reduction of dismissal costs and criteria. • Reform of the collective bargaining system, in particular to allow firms to opt out of collective agreements. • Reinforcement of active labor market policies, and enhanced links between vocational training, businesses, and the general education system. • Reduction in payroll taxes for part-time employment of the young and the long-term unemployed. • Reduction of the promised increase of MW (800€ by 2012, instead 641,40€ after 2011 rise)

  25. The new issue of linking wages to productivity (Merkel’s proposal) Source: Ameco

  26. Productivity per hour, EU (15) = 100 Fuente: Eurostat, Labour productivity per hour worked

  27. (c) Pension reform • 1. Untimely reform. • 2. Social Security in superavit even during the crisis. • 3. Relatively low spenditure on pensions. Pensions not particularly generous • 4. Purpose: to reduce the future increase in pension expenditure • 5. Changes: • - Extension of the standard retirement age from 65 to 67 • More stringent conditions to achieve full pension • From the 15 to the 20 last years • From 35 to 37 years WEF. Thursday, 28 January 2010 Reduction of future income of pensioners

  28. Source: Eurostat

  29. Source: Ownanalisisfrom SILC data

  30. Publicexpenditureonpensions (%GDP) Fuente: EuropeanCommission (2009): The 2009 AgeingReport: Economic and budgetary projections for the EU-27 Member States (2008-2060); Bruselas: EuropeanCommission.

  31. Impact on average pension of the extension of the number of years (from 15 to 20) used to calculate the retirement pension Source: own analysis from SS administrative data (2005)

  32. Merci pour votre attention

  33. Spain 1987-2011. Unemploymentratebygender

  34. Unemploymentbyagegroup (thousands) (%)

  35. Temporary employment during the crisis: Decrease in total employment

  36. (3) Empleo Empleo (miles) en España 1986-2010 UE

  37. Duration: 78% < 6 meses

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