Álvaro Nadal, Director of the Prime Minister's Economic Office, and former Minister Valeriano Gómez analyse the consequences of Spain's labour reforms in the ESADE Economic Report

Have Spain’s labour reforms met their objectives? What changes have they brought about in the labour market to date? What effects have been seen at the macroeconomic level? The ESADE Economic and Financial Report, written by ESADE’s Department of Economics, Finance and Accounting in collaboration with Banc Sabadell, devotes a chapter to analysing the effects of the labour reforms on Spain’s economy and competitiveness. The authors of this chapter are Álvaro Nadal, the current Director of the Spanish Prime Minister’s Economic Office, and Valeriano Gómez, who served as Minister of Employment under former Spanish Prime Minister José Luis Rodríguez Zapatero. The points of greatest disagreement for the two experts are the effects of the collective bargaining measures and the wage adjustments to increase competitiveness.

New balance in collective bargaining

According to Mr. Nadal, the labour reforms have had clear results: “The reforms have redressed imbalances in the negotiation conditions between insiders (long-term employees, employers and unions) and outsiders (new employees and unemployed people). Until 2012, the problem of the labour market was that it historically discriminated against employees on the basis of seniority – a perverse duality that benefited some to the detriment of others.” Since the labour reforms were established by Royal Decree in 2012, this situation has abated. According to Mr. Nadal, the reforms have “encouraged flexibility as a means of adapting to each company’s working conditions, revised the terms of the collective bargaining agreements to put an end to their extended validity, clarified the valid reasons for dismissal, established alternatives to dismissal and actively addressed the problem of temporary hiring”.

Former Minister Valeriano Gómez disagrees. According to Mr. Gómez, the instruments of the new negotiation scenario have “deeply disrupted” the functioning of the labour market and “have had an even greater effect than the new dismissal law”. Mr. Gómez highlights three measures in particular: “The disappearance of the extended validity of collective bargaining agreements, the promotion of the unilateral adjustment of working conditions on the part of the employer, and the absolute priority of company agreements over sector-based agreements.” He adds: “The available data suggest that coverage may have fallen by about 25% over the past three years.”

Wage adjustment and competitiveness

“Negotiations have been skewed in favour of employers, and this has prompted companies to try to increase their competitiveness through drastic wage cuts that are without precedent in Spain’s economic history”, argues Mr. Gómez in the ESADE Economic Report. “The increase in productivity – when there has been one – has never been absorbed by wages, which have consistently remained below the level of prices.” He added: “The decline in competitiveness during the crisis led many people to think that improving competitiveness required taking action in the definition of wages at the source. In reality, however, inflation rates were the cause of the problem.”

Mr. Nadal offers a contrasting viewpoint: “Since Spain cannot depreciate its currency, wage moderation is the best way to bring about a safe, long-lasting increase in competitiveness” because “prices, costs and wages have been rising much higher in Spain than in neighbouring countries”, which in turn has directly affected competitiveness. The labour reforms, he argues, “have managed to improve competitiveness without decreasing the purchasing power of wages, since there has been a nominal increase of 1% and a similar decrease in the consumer price index.” Mr. Nadal adds: “Therefore, not only has there been an increase in competitiveness, there has also been a real wage increase of approximately 2%.”

The ESADE Economic and Financial Report for the first half of 2016 was written by the Department of Economics, Finance and Accounting at ESADE Business & Law School, in collaboration with Banc Sabadell. The report was presented at ESADE Madrid on 5th July by Enrique Verdaguer, Director of ESADE Madrid, and David Vergara, director of the study. Mr. Verdguer and Mr. Vegara were accompanied by Álvaro Nadal, Director of the Prime Minister’s Economic Office, and former Minister Valeriano Gómez, who analysed the consequences of Spain’s labour reforms in the ESADE Economic Report.