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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Workers in Spain earn 20 percent less than EU average

Despite being one of the largest economies in Europe, Spain may not be a good place to work for those looking to be well compensated as figures reveal workers earn a lot less than some of their European neighbours.

Workers in Spain earn 20 percent less than EU average

People working in Spain earn, on average, €1,751 per month. This is 20 percent less or €443 less than the EU average of €2,194, according to human resource giant Adecco and their monitor on wages, published Tuesday.

Life in Spain is getting more and more expensive due to soaring inflation and rising energy costs, but despite having the highest average salary in history, people in Spain can’t afford as much as they did 13 years ago, due to diminishing purchasing power.

Within the EU, Adecco reported that 15 countries have wages lower than Spain, and 11 have higher. 

Nine European countries have average salaries above €2,500 per month, while in Spain the average salary does not even reach €2,000. This is the case in Finland (€2,603), Sweden (€2,623), Austria (€2,788), Belgium (€2,830), the Netherlands (€2,883), Ireland (€2,920), Germany (€3,003), Denmark (€3,458 ) and Luxembourg (€3,502).

In Germany for example, employees earn on average 42 percent more than in Spain, meaning that workers in Spain would have to work 20 months, almost two years, to be able to earn the same as a German.

There is more than €1,250 difference between what those in Germany are paid and what those in Spain are paid.

On the other hand, there are several EU countries with salaries less than in Spain. Those with average salaries of €1,100 are mostly found in Eastern Europe, with Bulgaria being the EU country with the lowest remuneration of just €562 per month.

This is followed by Romania (€718), Hungary (€798), Poland (€833), Croatia (€863), Latvia (€892), Slovakia (€977), Lithuania (€1,007), Greece (€1,034), Estonia (€1,053) and the Czech Republic (€1,078).

Spain forms part of the middle group that earn more than €1,100 per month but less than €2,500 per month. Those EU countries with salaries similar to Spain include Portugal (€1,106), Cyprus (€1,309), Malta (€1,329), Slovenia (€1,417), Italy (€2,074) and France (€2,446). However, there are of course wide gaps between these countries too.  

Compared to its nearest neighbours, Spanish workers earn 58 percent more than those in Portugal or €645 more per month, but 28.4 percent less than those in France or €695 less each month.