Labour reform has been a success

Labour reform has been a success
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Álvaro Martín

Álvaro Martín

Estudiante de economía internacional. Defensor del libre mercado desde que tengo uso de razón. Una sola frase para cambiar el mundo: "Laissez faire". Autor de "IN DEFENSE OF FREEDOM", prologado por Daniel Lacalle.
Álvaro Martín

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The labour reform

Don’t be paranoid… the labour reform has been a success

As you might know if you have read a bit about economics and politics since last week, during 2016 it was registered the biggest fall of unemployment levels in a one year term in history, concretely of 390,534 people in 365 days.

As usual, this wasn’t enough for the people of the 15 M, who as all populists lives from poverty and desperation and if these two factors disappear as well will do their support, so keeping revenge and rabidly fight alive is their main objective, depreciating these data and resting value to all the effort done by the Spanish people along this year to diminish our situation and vanish the ashes of our socialist past.

Our dark socialist past …

It would be fair to remember all the Spanish left that before the labour reform of 2012, relationships between workers and employers were already precarious and that we were registering the highest short term contracts rate of all the European Union, including the period of greatest growth in the peak of the bubble, where we had nearly 27% precarious employment.

There have been two measures that the PP has taken during these last four years, and which in my opinion have been the most essential for economic growth and the return to recovery: well-done public cuts and of course, the labour reform.

These two new laws were of course firmly criticized by the forces in the opposition, by saying that these reforms were used to make the riches richer and the poor poorest. Many politicians and economist nowadays think that the clearest solution for nowadays problems, or even into the crisis were to repeat.

As all the measures taken during the bubble went so well… let’s repeat! Why not?

Tasa de desempleo

There’s a remarkable data if turn around our heads and look to the period of 1980-2008, a space of time before the economic recession and without any labour reform into game.

Well, there’s people who might haven’t noticed it, but in these years, the mean unemployment rate was of 16%, and it went over 20% during nearly ten of those years, and this time yes, due to the previous labour legislation, showing that due to our temporary economic cycle, one of the Spanish market characteristics is low value employment massive destruction, and a weak employment structure in the tertiary and mainly primary sector.

Populist might argue, that the actual reform has been useful only to create weak and precarious employment, but the temporary rate has been incremented… another false affirmation.

This is shown because in the period of 1980-2008, this rate reached 30% of the total force, getting near even 35%, and being of 27%, which even though is still an incredible and outrageous number in contrast to the EU, it has descended at pair with unemployment.

But we recovered!

The labour reform might need to be re designed or even corrected but not to make it more interventionist or highly bureaucrat, and just to improve the market’s flexibility and allow easier employment and destitutions, and pairing decisions and legislations with economic growth levels and desires of companies and employers, being them the ones that employ workers and sustain our economy, and not egocentric politicians just wanting to attract a handful of votes with their populist’s ideas.

The only and merely fault that the reform could have had was improving the quality of tertiary sector jobs, and rising wages in a marginal way, as following statistics of the Cato Institute, the possibilities of finding a new indefinite employment have risen by 51% in contrast to the previous times of 2012.

In refutation to which many media think, and following the same studies, the possibilities of being fired due to the reform changes have been even reduced by 14%, generating a more flexible and stable labour frame.

Temporalidad y libertad del mercado laboral

In conclusion, destroying and derogating the labour reform with the unique intention of returning to a regulatory and interventionist system; as many politicians want will be an incomplete irresponsibility, proper of populists and unconsciousness.

The labour reform needs to be exalted and applauded, as its virtues have been immensely over its defects, as the decentralization of collective negotiation of labour conditions and the reduction of fixed costs in companies due to greater productivity linked to wages, have been two main reasons for the fall in unemployment and one of the bases of economic growth, advancing towards the complete liberalization of labour markets, with which some of us dream for one day.

Interventionists and populists will always be present with the intention of having complete domination over the market, and as the economist Daniel Lacalle frequently says:

“Interventionists are deeply preoccupied of poor people, that’s why each year they create hundreds of them”.

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