Spain’s Dual Labor System

Overregulation and excessive labor protections in Spain makes employers reluctant to offer permanent contracts because the cost of firing employees is very expensive. Therefore, Spanish employers prefer to offer temporary work contracts to avoid the costs of dismissing an employee. The result is that between one quarter to one third of employment in Spain is temporary. These workers have few rights and are easily fired.
Businesses need to be flexible, but workers require job stability. Businesses need to react to demand shocks, disruptive technology, and changing costs. The costs of firing employees with regular work contracts are excessive.
The duality of Spain’s labor market increases unemployment volatility.
Increases in the number of temporary workers reduced the number of days they work and their earnings.
Spanish workers have become discouraged and are leaving the labor force. The labor force participation rate has declined in Spain since 2012.
Spain should make it easier for employers to hire and fire workers on permanent contracts. Another alternative is to eliminate temporary contract employment entirely and transition to a single, unified employment system.
Increasing permanent jobs in Spain will improve the employment situation for workers and allow low skilled workers to gain more on the job training.
Works Cited:
https://fee.org/articles/why-spain-routinely-has-one-of-the-highest-unemployment-rates-in-europe/
Notes:
The social security tax on employers in Spain is almost 30% which is high.
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