Spain’s labour market buoyed by sharp drop in temporary contracts

Six months after Spain pushed through a key reform aimed at reducing labour market insecurity, the number of temporary contracts has fallen sharply, giving the government some welcome breathing space in a difficult economic context. But is it a "dressed up" reality?

During the summer, Spain always sees its unemployment figures drop due to the surge in temporary contracts in tourism and agriculture. (Photo by CRISTINA QUICLER / AFP)

Long one of the European nations with the highest number of temporary contracts, Spain saw its unemployment figures fall for the sixth consecutive month in June, with the Labour Minister Yolanda Diaz hailing “historic” data on Monday as evidence of “a paradigm shift”.

By the end of June, the number of jobseekers in Spain stood at 2.88 million down from 2.92 million a month earlier and the lowest monthly figure since the start of the financial crisis in 2008.

The drop was due to a significant increase in jobs, with 783,595 permanent contacts signed in June, the highest monthly figure ever recorded.

“This is a record number of permanent contracts, representing more than 44 percent” of the total number of new jobs, she said.

At this time of the year, when there is a surge of temporary positions in tourism and agriculture, permanent contracts usually only account for 10 percent of new jobs.

“We have 740,000 more people… with permanent contracts than before the pandemic,” said Prime Minister Pedro Sanchez said this week.

Writing on Twitter, Díaz said the increase “clearly shows the effect of the labour reform.”

But she cautioned: “There is still a lot to do, but we are showing that there is an alternative model to job insecurity: decent work with rights.”

Addressing a key weakness

The reform, which took effect on January 1 following a hard-fought deal negotiated between the government, employers’ groups and unions, limits the back-to-back use of temporary contracts and makes permanent contracts the rule rather than the exception.

This reform “was requested by Brussels”, explained Carlos Victoria, a researcher at the Esade business school, after many Spanish companies got into a habit of “filling existing positions with temporary contracts”.

According to Eurostat, nearly 22 percent of Spanish employees had a temporary contract before the pandemic, compared to an EU average of 14.4 percent.

For many economists, this phenomenon — brought about by a 2012 law by a conservative government to boost employment after the financial crisis — has been one of the main weaknesses of the Spanish labour market.

But observers are divided whether the reform can cure the fragility in the Spanish labour market.

‘Dressed up’ reality?

For the UGT General Union of Workers, the results of the first half of 2022 “confirm that the new labour reform is proving to be effective in improving the quality of employment”.

But the USO union said that 60 percent of the permanent contracts signed in June were for “part-time” work, or so-called “discontinuous fixed contracts” where an employee becomes a permanent staff member, but only works during certain months of the year.

“The permanent discontinuous contracts are the new temporary contracts… completely perverting” the figures, said USO’s secretary-general Joaquín Pérez.

For the right-wing opposition Popular Party, the reform was more a bit of window-dressing.

“There is a reality that is dressed up,” said the PP’s number two, Cuca Gamarra, who accused the government this week of presenting what appeared to be permanent contracts “which in essence were not”.

The increase in discontinuous fixed contracts, however, was only a part of the story, according to Esade researcher Victoria.

The labour reform had led to “a net creation of permanent employment” and “greater protection, and even greater stability” for temporary workers, he said.

Nothing suggests, however, that the trend will continue in the coming months.

“We are in a period of great economic uncertainty”, notably with very high inflation, Victoria said.

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Men earn 21 percent more than women in Spain

The gender wage gap is still a problem in Spain and not only do women earn less than men, but twice as many women are also low-paid employees.

Men earn 21 percent more than women in Spain

Women earn on average 21 percent less than men in Spain and they are in the minority when it comes to the highest wage brackets, according to recent data from Spain’s National Statistics Institute’s (INE) Active Population Survey.

The survey also found that the number of female employees with the lowest salaries is double that of men. This is due to the fact that women still do the majority of the low-paid work in Spain.

And it seems the situation is not improving. The gender wage gap has barely narrowed by six points since 2006 and has even increased by two points since 2020 when the difference was 19 percent.

Men earned an average of €2,276 per month in 2021, while women earned €1,883 per month or €393 less.

The wage gap widens even further when it comes to salaries in the highest-paid jobs. One in three men received a high salary compared with one in four women the study found.

When looking at the lowest salaries – considered to be less than €1,376 –, 40.5 percent of women received below this amount compared to only 20.2 percent of men.

According to researcher Florentino Felgueroso at the Foundation for Applied Economics Studies (FEDEA) women in Spain are often less skilled and have low-paid jobs because the burden of childcare, as well as care for the elderly, usually falls on them.

The jobs held by women in Spain are also some of the most precarious. According to data from the INE, the lowest-paid jobs are in domestic work as cleaners or care workers and 90 percent of these are women.

The study found that this is also true of the second lowest-paid jobs in the hospitality industry and admin sector.

At the other end of the scale are the highest-paid industries – one of which is electric and gas workers, where there 30 percent more men employed than women. There are also twice as many more men than women working in the information and communications sector, another industry with high salaries.

Among the poorest workers, 10 percent of men earn a salary of €595, while the poorest 10 percent of women receive just €562. On the other side of the spectrum, the richest 10 percent of men earn €5,130 per month, compared to €5,029 per month for women.  

Another factor that widens the pay gap the study discovered is that there are six times more women with part-time contracts than men in Spain – 22 percent compared to just 6.6 percent.  

Spain’s gender pay gap is higher than the EU average of 13 percent according to the latest data from the European Commission.   

The latest data available for France shows that men earn on average 16 percent more than women while in Germany it stands at 18 percent. 

According to the UK’s Office for National Statistics the latest data from April 2022 showed that men earned 8.3 percent more than women.