The Spanish labor market has shown notable resistance and dynamism in recent times, despite the fact that Spain continues to register the highest unemployment rate in the euro zone, according to the Organization for Economic Cooperation and Development (OECD), for the that the labor market reform, introduced in 2021, contributes to improving the quality of employment in the country.
“The 2021 labor market reform contributes to improving the quality of employment in Spain”, affirms the ‘think tank’ for advanced economies in its report ‘Employment Outlook 2023’, which highlights that one year after its entry into force , the number of temporary contracts has been reduced by 30% and most of the new contracts are permanent, reducing the disproportion of temporary contracts between Spain and other European OECD countries.
In fact, according to the document from the Paris-based organization, in the fourth quarter of 2022, the proportion of new jobs with temporary contracts was lower than in the fourth quarter of 2019 in 20 of the 28 countries with available data, despite of the strong economic cycle in both periods and, on average, the proportion of new hires with temporary contracts fell from 49% to 46%.
“The largest proportional decreases were registered in Norway, Spain, Sweden, the Slovak Republic and Ireland, while Lithuania and Iceland saw an increase in the proportion of new hires with temporary contracts, although from initially low levels”, highlights the OECD. In this sense, the OECD warns, however, that the effectiveness of permanent-discontinuous contracts, a new provision introduced by the 2021 labor reform for seasonal workers, in improving the job security of temporary workers “is still uncertain” and points to the need for continued supervision and potentially tighter regulation to ensure further developments.
In general, the organization highlights that the Spanish labor market “has shown remarkable resistance and dynamism in recent times”, as demonstrated by employment growth of 1.2% in the first quarter of 2023.
Thus, the Spanish unemployment rate has reached its lowest level in decades, standing at 12.7%, still well above the OECD average and the highest among the euro zone economies. In this sense, after the solid recovery of 5.5% registered by the Spanish economy after the coronavirus crisis, the OECD forecasts that the economic expansion of Spain will moderate to 2.2% in 2023 and 1.9% in 2024, so it is anticipated that the country’s unemployment rate will remain at a relatively high level (12.6%) for the rest of 2023.
On the other hand, the OECD points to the fall in real wages in practically all OECD countries in the first quarter of 2023 as a consequence of the rise in inflation. On average, real wages fell by 3.8% per year in the first quarter of 2023 compared to the previous year among the 34 OECD countries with available data, while Spain experienced a decline of 1.2% in the year to date. the first quarter of 2023. “This decline is more contained than that observed in other EU countries due to the dynamics of nominal wage growth and inflation, especially during the second half of the year,” explains the OECD, recalling that, in this period, the growth of nominal wages increased from 3.2% to slightly less than 4%, while inflation fell from around 9% to approximately 6%, cushioning the fall in real wages.
Also, at a general level, the OECD considers that there is room for earnings to absorb additional increases in wages, at least for low-wage workers. In this sense, the ‘think tank’ points out that, on average in the OECD, legal minimum wages have increased significantly in the last two years, allowing real minimum wages to keep up with inflation better than average wages. In the case of Spain, the OECD highlights that the nominal minimum wage has increased by 13.7% since December 2020, in line with inflation, keeping the real minimum wage constant, also stressing that, even before the escalation of the inflation, increases in the minimum wage in Spain were substantial, placing the country among the OECD members with the fastest growth in the legal minimum wage.
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