"SPAIN IS DOING GREAT," SPANISH PRIME Minister José María Aznar said in 1996. Since his center-right victory in 1996 after nearly 14 years socialist governments, Aznar has cut unemployment from an embarrassingly high 23% to 15% (fig 4). Last year he took Spain into the European single currency. Under his Popular Party, the Spanish economy created as many as 2 million new jobs in four years.
Fig 4
Since the late 1970s, legal reforms such as the relaxation of restrictions on grounds for dismissal, the use of temporary contracts and the adaptation of regulations governing working hours and overtime to the new requirements or characteristics of work/production units have been introduced. Simultaneously, collective bargaining has attempted to restrain wage growth by adjusting pay increases to the particular situation of each enterprise or industry. One of the main objectives of the labour legislation reform of 1994 was to increase labour flexibility.
Fig 5.
In 1997, temporary employment was most common in Spain (33,6 %), where as Britain only accounted for 6.5 per cent, clearly indicating that Spain encouraged for more temporary work compared to Britain. Temporary work results in cut of costs as well as form flexible employment. Fig 6 shows this increasing trend in Spain, especially amongst women.
Fig 6: Percentage share of temporary employees of male and female employees in 1983 and 1992-1997.
Furthermore, part-time employment is another trend that is very common in Spain as shown in Fig 7.
Fig 7: Part-time employment rate 1989-1998.
As shown, part-time work has increased since 1989 and continues to increase. Part-time and fixed-term contracts are central tools in striving for increased flexibility and efficiency of labour markets. For women, the reason is often the difficulty of combining full-time work and family life.
"We can create another 1.4 million new jobs in the next few years, but above all we need to get women into the labour market," said Aznar in his interview.2 More than 1,100,000 people entered the labour market during 1986-1990, 896,000 of whom were women. Currently Britain accounts for up to 50% of women in the workforce, where as Spain, 42%. Therefore, more women would have to enter Spain's labour market for it to reach to Britain's level.
Fig 8: Employment rate.
We can clearly see that there has been an increase in women joining the labour market; this trend is still strongly encouraged. In effect, it should shift the supply curve for female labour to the right.
In addition, flexitime is expected to be in very wide use, in 1998, accounting for up to 50% in Spain's companies. A number of firms, particularly those in the service sector, have introduced flexitime. This was a response to 2 forces: (a) the growth in the number of married women in the labour force who had family commitments, and (b) the desire to see the rush-hour problem spread more evenly. Flexitime allows workers to be flexible-within reason-in choosing their working hours. Telework is also expected to be widespread use. Accounting up to 13 per cent in 1998. This is due to the introduction of new technology. In effect, this increases productivity, reduces costs and creates more flexibility. Furthermore, among companies claiming to have adopted e-commerce methods, Britain accounted for up to 35 per cent where as Spain for up to 23 per cent.
Additionally, of further importance is the shift in employment from industry (manufacturing) to construction similarly as Britain. This trend is clearly shown in fig 9.
Fig 9: Decline in industry and increase in services, 1997-2000.
As shown on fig 9, there has been a decline in the manufacturing sector, where as, at the same time period, the service sector increased and the trend continues apace. The largest increase is in the construction sector, which is starting to stabilise.
Recent trend indicates that there are an increasing number of young people entering the labour market. In 1997, youth unemployment was 39.4%, almost twice as high as the average unemployment rate. In contrast, Britain's youth unemployment rate is 15%, almost half of Spain's youth unemployment rate.
Fig 10: Youth jobless rate in Spain.
As seen on fig 11, after hitting more than 42% in 1996, the youth jobless rate slipped back under the 30% mark in 1999. In effect, the labour force has increased.
In terms of future employment in Spain, fixed-term contracts are significantly less important than permanent contracts. This is due to their much shorter duration, which accounts for just 2% of that of permanent contracts. In contrast, Britain encourages for fixed-term contracts.
We can account for many similarities between the labour trends in the UK and Spain. These include, a change in the nature of jobs available, with an increase in the number of women employed, against a decrease in male employment. Moreover, a significant increase in part time and self-employment is linked to continued increase in flexible working methods, including teleworking.
A good example of this similarity would be Blair and Aznar's joint statement earlier this month, published in the Financial Times and El Mundo, outlining their common stance on the deregulation and liberalisation of industry.3 Both leaders played a major part in orchestrating the EU's pledge at the Lisbon summit in March to copy US-style labour market flexibility.
As far as the differences are concerned, these include the vast contrast in the unemployment rates between those two countries, and that Spanish enterprises, require six to nine months of preparatory legal work before they are ready to open for business, whereas in Britain a company can be established in half a day. This indicates that Spain still has much to go on its way before it reaches to the same level of that of UK's. Spain needed more flexibility in its labour and product markets if it wanted "high and stable" growth, as in the UK. To further promote labour market flexibility; the new part-time work regulation should be softened. Yes, the economy is “doing well”. However, there is work to be done if Spain's impressive growth performance is to be sustained.
BIBLIOGRAPHY
MAIN SOURCES:
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Nuffield Economics & Business (Textbook)
- Business Studies Today (Textbook)
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(Internet)
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(Internet)
- The Economist (news magazine)
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(Internet)
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(Internet)
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(Internet)
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Letts STUDY GUIDE A- level BUSINESS STUDIES by David Floyd (Textbook)
- www.cfnavarra.es/inam/empleo/textos/mercado1.html (Internet)
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(Internet)
APPENDIX 3:
World Socialist Web Site www.wsws.orgSpanish government speeds up liberalisation of utilities
By Vicky Short
22 July 2000
Following the Popular Party victory at the general elections in March, Prime Minister José María Aznar is pushing ahead with the speedy liberalisation of the country's utilities.
Aznar has brought forward plans to open up the electricity supply industry from 2002 to this October. The measures will restrict the larger power groups, such as Endesa and Iberdrola, from increasing their output capacity for between three to five years, whilst enabling 8,000 companies, representing 44 percent of total domestic energy consumption, to choose their electricity provider and negotiate prices. All electricity consumers are to be able to choose their supplier from 2003, four years earlier than planned.
The fast-track timetable hinges on a plan to compensate most of the estimated $8.4 billion “stranded costs” incurred by the power groups under the previous highly regulated system. Three-quarters of these costs will be sold in the form of securities, enabling the generators to be paid immediately. The debt issue would be paid by a 4.5 percent levy on all electricity bills for the next 15 years.
Aznar is also to accelerate the liberalisation of the gas industry to competition. The deadline will be brought forward from 2007 to 2003, with 80 percent of the market opened up a year earlier. Other sectors for reform are the oil, television, railways and mining industries. Hypermarkets are to be able to sell petrol, whilst the major oil companies will be made to freeze the expansion of their own retail networks.
The speed at which Aznar is implementing the new initiatives has drawn complaints from the European Commission in Brussels, which is to review the plans for the electricity industry and telecommunications, following allegations that the government has taken unwarranted shortcuts in its rush to liberalise. It is also concerned that the Spanish government has overestimated the amounts owed to the power groups and that the proposed scheme will set a precedent for other European Union countries who are opening up their electricity markets.
Big business is still not wholly satisfied with the measures. Telefónica, the former state-owned telecommunications system, was privatised in 1997. Soon after the recent elections, however, the government opposed a planned merger with KPN of the Netherlands because the Dutch operator is 43.5 percent state-owned. The government blocked the merger by wielding its “golden share” in the company. Rodrigo Rato, Economic Minister, stated that he was not prepared to allow a foreign government to be a principal shareholder in the company.
One week later, Germany's Energie Baden Wuerttemberg (EnBW) withdrew its competing bid for Hidrocantábrico after learning that the government objected to the fact that Electricité de France (EdF), a state-controlled monopoly utility, owned 25 percent of its equity. Just three weeks after this, the Aznar government vetoed a proposed take-over by the power group Union Fenosa of its smaller rival Hidrocantábrico because it would have reduced the number of main electricity generation companies from four to three.
The aborted EnBW bid prompted an outcry among bankers close to the deal. London's Financial Times quoted one of them as saying: “We are starting to look like fortress Spain. Government fundamentalism over state holdings threatens to limit the growth of Spanish companies, destroy shareholder value, and undermine the open market values that it claims to defend.”
Nonetheless, Telefónica's former telecoms monopoly will be ended by next January, when people will be able to choose their operator for all calls. Competition in local calls will be opened up in November.
Aznar is particularly keen to introduce greater flexibility into Spain's labour market. With the full collaboration of the trade unions, the government has succeeded in making it easier to lay off workers and is reducing compensation payments. Business is urging the government to press ahead with additional measures, including a further reduction in the cost of dismissals, cutting the size of employers' Social Security contributions and the privatisation of state pension schemes.
The prime minister has also made it clear that he intends to cut unemployment entitlements. Spain has an unemployment rate of 15 percent, one of the highest in the European Union (EU). His model for these changes are the measures introduced by Prime Minister Tony Blair in Britain, under which unemployment benefit is conditional on recipients proving they are constantly making an “active effort” to gain employment.
The Spanish measures continue a close collaboration with the British government aimed at presurring other EU countries to speed up economic reforms, and eschew “heavy handed regulation” and “divisive constitutional debate”.
Blair and Aznar issued a joint statement earlier this month, published in the Financial Times and El Mundo, outlining their common stance on the deregulation and liberalisation of industry. “As prime ministers, we may come from different political traditions, but we are united in our determination to pursue this [economic reform] agenda. In the past, we made the mistake too often of trying to apply social policies that generated obstacles for business growth and job creation,” they wrote. Both leaders played a major part in orchestrating the EU's pledge at the Lisbon summit in March to copy US-style labour market flexibility.
Blair is keen to encourage Aznar's liberalising zeal to answer complaints of heavy-handed regulation within the EU by the Eurosceptics inside his own party and within the British political establishment generally.
For his part, Aznar has used the relationship with Blair to strengthen his image at home and to increase Spain's political weight within the EU. Aznar has demanded that Spain be given parity with the “Big Four”—Germany, France, Britain and Italy—in an enlarged European Union. At present, the four control ten votes each in the Council of Ministers, compared with Spain's eight. The government is concerned that Spain will lose funding and be marginalised when poorer countries from central and Eastern Europe are admitted to the EU. Aznar argued: “If we are creating more than half the employment in Europe, if we have liberalised markets faster than anywhere else, if we have balanced our budget and lowered taxes—then I think that Spain has the right to a greater say.”
Most of all, the assertion of the Anglo-Iberian alliance is designed as a counterweight to the Franco-German axis. The German and French governments recently voiced their intentions to create a “core” group within the EU, which, under their leadership, would help speed European integration. In their joint statement, Blair and Aznar warned, “some of us may wish to go a bit further a bit faster on political reform, but all must respect rules and procedures of the Union. There can be no second class citizens in Europe.”
Copyright 1998-2000
1 See appendix 1: "Employment Boom For Women".
2 See appendix 2: "Spain Has Changed"
