Labour markets, competitiveness and people

I have been thinking about starting a blog for a while, and the combination of a Siberian weekend in San Sebastian and hot debate surrounding last Friday’s new labour legislation in Spain has given me the combination of opportunity and motivation to finally get my act together.

The functioning of the labour market has long been a problem area for the Spanish economy, at least from the perspective of business. The executive opinion surveys that are used to build the World Economic Forum’s ‘Global Competitiveness Index‘, for example, rank Spain’s labour market efficiency as 119th in the world, with the main gripe being hiring and firing practices. The new legislation is designed to tackle this, making it much easier to fire (and in theory therefore also to hire) people, and also making it easier to negotiate wages downwards. The aim is for more flexibility, so that it is easier to create jobs, but also so that it is easier for Spanish firms to make cost adjustments to maintain their competitiveness.

Labour market reform is a sensitive issue at the best of times, and with pessimistic forecasts of unemployment hitting 6 million this year, this is a particularly tricky time. However, despite protests from Spain’s trade unions planned this week, my feeling is that there is fairly general acknowledgement that the labour market does need greater flexibility. It is currently too difficult for Spanish firms to adjust, both as they grow and as they hit difficulties, which hampers the ability of SMEs in particular to compete. Yet there are at least two important caveats to this argument which current policy discussions do not recognise strongly enough (if at all).

Firstly, more flexibility in one area will only have limited effects on making the labour market work better unless the mobility of people is also supported, something which Spanish housing policy (subsidised home-ownership with strict re-sale conditions and a lack of affordable rental property) works strongly against.

Secondly, the other side of the coin from flexibility is potential loss of security. Given the importance of stable work for people’s well-being and fulfilment, it is critical to find a balance that works both for firms and for society. For me this requires at least three complementary measures:

  1. The fostering of a productive dialogue between firms and employees that is built around mutual respect and recognition of each others’ situation (here we can learn much from the cooperative movement, for example, although I suspect little from the current relations between big business and trade unions in Spain).
  2. A very strong policy focus on education and training: good basic education provides a foundation for people to be more flexible in their outlooks and capabilities, and opportunities for upgrading and reskilling should be available throughout people’s lives.
  3. Dignified support for those who lose their jobs, both financial and in the form of an effective employment-search service.

It is these sorts of dilemmas that make competitiveness such a tricky concept, and one that I hope to share and discuss some thoughts on through this blog. Above all, I am interested in understanding how to build and shape an economy so that it supports both the competitiveness of its firms and the well-being of its people, aspects that I believe cannot be treated separately.

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2 Responses to Labour markets, competitiveness and people

  1. Rob says:

    Interesting first post, and makes sense to someone not very familiar with the Spanish economy. I am however, wondering if there are any more reforms to the labour market that you think would help address the high rate of unemployment? I know you have restrictions on when you can take holiday and the hours you must work in day, so perhaps these are other areas where more flexiblity can be introduced for the benefit of employers and employees?

    • James Wilson says:

      Thanks for the comment Rob. You are right, in that current legislation is also very rigid in terms of ‘convenios’ or fixed agreements/contracts that specify hours, holiday entitlement etc. and give little room for manoeuvre. This is something that the new reforms have not addressed and is an important area for potential improvement. I am sure that there are many people who may want to work fewer hours to maintain a different work-life balance, something that would also open up employment opportunities for others (indeed, in the UK context I found the recent report by the New Economics Foundation (21 hours) makes some interesting points). However, rigid legislation and an inflexible culture among many Spanish firms makes it very difficult to do this. The culture point is also important, as there is only so much that can be legislated for, and an imbedded culture of inflexibility in work arrangements will only change slowly over time.

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