Economic policy, employers’ strategies and changes in working conditions in the current crisis in Spain
Josep Banyuls (Universitat de Valencia and Institutd’Estudis del Treball)
Albert Recio (UniversitatAutònoma de Barcelona and Institutd’Estudis del Treball)
1. Introduction
Every crisis involves a transformation of the economic and social structure. The current recession has been very intense according to the standard measures of economic performance. Job destruction has been very high in some countries, social inequalities have increased dramatically and the quality of employment has declined. However, in addition to these quantitative changes, it is important to address the qualitative changes to the existing model. Every change involves breaks and continuity: some features of the previous model are left behind, while others continue and may even be reinforced. The changes have a temporal cadence that goes far beyond the moment of crisis in which they occur.
To analyse the transformations that have taken place in employment during the current crisis in order to explore future trends, we feel that two basic and interrelated aspects must be considered:first, the characteristics of the production model in a broad sense, including business structure, production specialization and strategic business options; and,second, the employment model, including government regulation of labour, the structure of collective bargaining andlabour policies of companies. In this context of analysis, public policy is especially important and has an impact on three levels: in the dynamics of the public sector as an employer; in its effect on the production structure (e.g. through R&D, competitiveness, and education policies); and in its effect on business management and labour relations through labour legislation.
Taking into account these aspects, the aim of this paper is to analyse the changes that have occurred in the Spanish economy during the current crisis, considering not only the period of strong job destruction but also the brief phase of job creation in recent months. The analysis is fragile to some extent because the period considered is very short, but the paper’s aim is to explore, albeit tentatively, any trends that seem to indicate a qualitative change and a change of model and to assess their impact on employment quality. In this paper we will first address the basic features of the Spanish employment model in recent years. Second, we will analyse the most important changes during the crisis. Third, we will explore the emerging features of employment quality in the recent period of growth in employment. Finally, we will presentsome conclusions.
2. The basic features of the Spanish employment model in the years of growth
In the years before the current crisis, Spain was an example of a successful country with high rates of growth and job creation. However, the model showed significant interconnected weaknesses (Banyuls et al 2009, Banyuls and Recio 2012). One of the main problems of the Spanish labour market is production specialization. The strong growth in the boom years occurred in only a few activities. More than half of the jobs created between 1994 and 2007 were concentrated in the sectors of construction(17.9%),[1] real estate and business services (16.6%), retail and repair (12.8%), and hospitality (8.2%); manufacturing accounted for another 7.9%. These are all labour-intensive, low-value-added sectors with a low technological level and a low level of investment in R&D. With this composition and the type of sectoral development, the weaknesses are evident: growth is concentrated in a few sectors related to construction and tourism, industry shows weak international penetration, and there are few advanced tertiary activities. All of these characteristics favour poor employment quality and more reactive business management practices.
The other main feature of the production model in this period is the predominance of competitive business strategies based on reducing labour costs, which led to the spread of precarious conditions of employment. Temporary employment remained at very high levels (above 30% of temporary employment rate) throughout the entire period of expansion, associated with a quantitative and reactive labour management based on flexibility. Wages decreased in importance in the distribution of income (ConsejoEconómico y Social 2013) and the quality of employment deteriorated in general (Prieto et al 2011).
The public sector played a key role in shaping the weaknesses of the growth model before and during the crisis. In comparison with European standards, Spain has always been a country with a weak welfare state. During the boom years, strong growth made the provision of public services compatible with low tax collection without too much financial stress. There were even years of surplus. A modest welfare state and the decision to take the “Third Way” made this balance possible (Miguelez and Recio 2010). But the crisis put an end to this model. Compared with the Eurozone average, the fall in income in Spain has been very pronounced and the increase in spending has been very sharp, so the need for financing has soared.
The underlying problem of these trends is the low development of the public sector and the limits that this involves. First, our welfare state and public service model continues to depend partly on informal and private provision, satisfying needs but favouring poor employment conditions. Second, the sustainability of the model depends on reducing costs. A good example of this is the continuing deterioration of employment conditions in public services in recent years, even before the application of austerity policies. Finally, a weak public sector is less able to manage crisis situations. These limits are found in the management of aggregate demand, in income policies, and in the measures aimed at mitigating the negative effects of the crisis.
These regressive trends that directly affect employment quality have been strengthened by changes in the labour legislation. Reform after reform, the dynamics of the labour market has been one of increasing precariousness, facilitating a growth model of low wages,in which labour relations voided of content focus mainly on pay bargaining (Pérez Infante 2011). With the benefit of hindsight, the years before the crisis saw the gradual formation of a labour relations model in which the social dialogue and the role of trade unions declined. The crisis reinforced this dynamic and the 2012 labour reform put an end to the model of industrial relations that had been established in the 1980 Workers’ Statute. As we will see below, the reforms resulted in more vulnerable employment conditions and in a significant increase in managerial prerogatives and job insecurity.
3. Sectoral change from 2008
The crisis led to an intense destruction of employment and, together with Greece, Spain was the country with the highest number of job losses within the EU. This trend in employment is largely explained by the characteristics of the production structure that had been established in the period of expansion and subsequent collapse. The activities that had driven growth were precisely those that collapsed rapidly, and it is this fragility of the production structure (rather than labour regulation as has conventionally been argued) that explains the strong impact of the crisis in Spain in terms of employment (Table 1). However, it is interesting to note some aspects of the changes in employment during the crisis.
The crisis can be divided into three distinct periods. The first was between the first quarter of 2008 and the first quarter of 2011, a period in which the austerity policies had not yet been conclusively applied. Job destruction was high in the activities that had been the main drivers of growth (construction, retail and hospitality) and also in industry. Two factors explain this trend: the decline in activities directly related to construction and the decline in the sectors that most suffered the fall in international demand. This was the case in the automotive sector and some other sectors with a high level of exports. Other activities in recession were agriculture, other services (mainly personal services), and financial activities (affected by the restructuring of banks). However, some jobs were also created. Expansionary policies applied in the early years of the crisis allowed an increase in employment in activities related to the public sector: public administration, health and social services, and education.
The second period covers the years 2011 to 2013, when austerity policies were applied with greater intensity and job flexibility was increased by two labour reforms. Job destruction continued in the same sectors as in the previous period, but with slight changes: the car industry was no longer a job-destroying sector and falling industrial employment was now due more to the internal recessive dynamics of the construction sector than to developments in the external sector. However, the most significant change that occurred in this second phase of the crisis was that the austerity policies led to heavy job losses in the public sector (Recio 2013). The role of containment that public employment played in the early years of the crisis came to an end and the public sector became one of the drivers of job destruction. The few jobs created were in other services (personal services) and agriculture.
Table 1. Change in employment by economic activity in Spain,period 2008Q1-2015Q12008Q1-2011Q1 / 2011Q1-2014Q1 / 2014Q1-2015Q1
Economic activity / (000) / in % / (000) / in % / (000) / in %
Total / -2193,8 / -10,6 / -1475,6 / -8,0 / 504,2 / 3,0
Agriculture, forestry and fishing / -92,1 / -10,6 / 31,1 / 4,0 / -91,7 / -11,3
Mining and quarrying / -10,5 / -19,6 / -9,5 / -22,0 / -5,2 / -15,5
Manufacturing / -776,4 / -25,0 / -266,3 / -11,4 / 114,9 / 5,6
Electricity, gas, steam and air conditioning supply / 7,8 / 10,7 / 8,8 / 10,9 / 10,3 / 11,5
Water supply; sewerage, waste management and remediation activities / 5,1 / 4,4 / -13,2 / -10,9 / 22,5 / 20,9
Construction / -1180,1 / -44,0 / -557,3 / -37,2 / 118,5 / 12,6
Wholesale and retail trade; repair of motor vehicles and motorcycles / -285,6 / -8,8 / -130,4 / -4,4 / 83,7 / 3,0
Transportation and storage / -40,9 / -4,3 / -79,6 / -8,7 / -9,4 / -1,1
Accommodation and food service activities / -81,4 / -5,8 / -55,8 / -4,2 / 87,1 / 6,9
J Information and communication / -20,4 / -3,8 / -20,7 / -4,0 / 7,9 / 1,6
Financial and insurance activities / -54,6 / -10,4 / -7,3 / -1,6 / -18,8 / -4,1
Real estate activities / -28,8 / -23,4 / 1,8 / 1,9 / 6,2 / 6,5
Professional, scientific and technical activities / -44,1 / -4,9 / -34,8 / -4,1 / 61,2 / 7,4
Administrative and support service activities / -3,7 / -0,4 / -61,1 / -6,6 / 43,7 / 5,1
Public administration and defence; compulsory social security / 223,1 / 17,9 / -184,7 / -12,6 / 48,5 / 3,8
Education / 55,8 / 4,7 / -45,7 / -3,7 / -10 / -0,8
Human health and social work activities / 218,3 / 18,1 / -25,2 / -1,8 / 14 / 1,0
Arts, entertainment and recreation / 40,7 / 13,9 / -4 / -1,2 / 18,4 / 5,6
Other service activities / -74,9 / -16,9 / 31,2 / 8,5 / 6,1 / 1,5
Activities of households as employers; undifferentiated goods- and services-producing activities of households for own use / -52,6 / -7,1 / -52 / -7,5 / -3,7 / -0,6
Activities of extraterritorial organisations and bodies / 1,3 / 59,1 / -0,9 / -25,7 / 0 / 0,0
Source: Own calculation from LFS
The third period began in the firstmonths of 2014, when a timid recovery began to be seen in the Spanish economy. Although jobs are still being destroyed in some sectors, such as agriculture (due to its age-old tendency to lose jobs andperhaps also to seasonal factors in the period analysed) and financial activities (still being restructured), in the vast majority of sectors employment has increased (see Table 1).
The first question that we can ask is whether the crisis has led to a significant sectoral reorganization and the adjustment has laid the foundations for a new production model. If so, in the expansive phase employment growth could be expected to take place in different activities than those of the pre-crisis expansionary phase. The analysis of the data does not support this hypothesis. Quite the opposite: although the period under consideration is brief, the strong concentration of job creation in a few activities suggests a return tothe previous model, with no signs of a major transformation. However, some points should be noted.
The first feature to note is that the traditional sectors that were the basis of growth are still present in this new phase of growth. For example, there has been strong job creation in the construction, hospitality and retail sectors. Other sectors in which jobs are being created—and which could contain new activities—are industry, professional activities, administrative activities and public administration.[2] In industry, job creation focuses primarily on the manufacture of vehicles and metal products. There is therefore no significant growth of new activities. The only noteworthy feature is a slight increase in employment in the pharmaceutical and food industries. With regard to professional activities, job creation is mainly concentrated in three areas: legal and accounting activities; head office activities, business consultancy and management; and technical architecture and engineering services, testing and technical analysis. Administrative activities are occupations related partly to office work but above all to gardening and security. Finally, in the public administration much of the increase in employment is due to the political cycle and the proximity of elections rather than to a commitment to recover employment in the public sector.
Overall, there do not appear to have been any significant structural changes indicative of a profound transformation of the production structure, as was to be expected because no industrial policies with this aim have been implemented (also difficult to apply within the current Europeanpolitical framework). This absence of change in the production structure means that wage moderation and flexible employment continue to be the basis of competitiveness in Spain, whereas more inclusive proposals targeting greater labour integration and better employment conditions have not been fostered.
4. Quantitative flexibility: a change of model?
One of the features of the Spanish labour market has been the high rate of temporary employment. Orthodox economists consider that the cause lies in excessively rigid job protection measures, which encourage companies to recruit on temporary contracts to avoid the high costs of dismissal. These economists consider that the ease of use of temporary employment could explain both the high volatility of employment in Spain and its great elasticity against fluctuations in economic activity. They also consider that temporary employment operates alongside excessively rigid standards of protection for permanent workers, resulting in a dual labour market: some workers are permanently stable, whereas others bear the full cost of the employment adjustment (Dolado et al 2002).
In our point of viewthis is an overly simplistic view that holds only when the data are analysed in aggregate. Disaggregated by sectors and case studies, a more complex reality emerges. First, the use of temporary employment varies greatly between sectors of the Spanish economy (Table 2), and a large part of the temporary employment is in the large sectors that employ a high volume of temporary labour (construction and tourism). Second, permanent contracts are not immune to the situation of the economic cycle. In situations of prolonged depression, stable employment decreases significantly. In fact, in the 1991-94 crisis net job destruction only took place in stable employment. Third, the public sector has played an important role in recent years in generating temporary employment. In particular, the government has applied neoliberal policies aimed at weakening the large education and health sectors, either by making public employmentmore unstable or through outsourcing. Finally, the uncertainty and instability of some activities significantly favours the use of temporary contracts.
Table 2. Temporary employment rate (in %) by economic activity in Spain2008Q1 / 2011Q1 / 2014Q1 / 2015Q1
Total / 30,0 / 24,6 / 23,1 / 23,6
Agriculture, forestry and fishing / 60,7 / 58,4 / 66,6 / 59,8
Mining and quarrying / 14,4 / 11,8 / 13,6 / 15,0
Manufacturing / 22,0 / 16,9 / 17,1 / 18,8
Electricity, gas, steam and air conditioning supply / 18,0 / 13,0 / 14,3 / 12,1
Water supply; sewerage, waste management and remediation activities / 21,4 / 15,7 / 10,4 / 14,9
Construction / 51,2 / 40,8 / 33,3 / 38,7
Wholesale and retail trade; repair of motor vehicles and motorcycles / 24,1 / 17,1 / 19,3 / 19,6
Transportation and storage / 22,1 / 17,2 / 20,0 / 18,7
Accommodation and food service activities / 36,2 / 33,0 / 36,8 / 34,2
J Information and communication / 20,9 / 19,2 / 18,9 / 18,2
Financial and insurance activities / 11,6 / 8,5 / 6,3 / 8,5
Real estate activities / 16,8 / 13,6 / 12,8 / 18,6
Professional, scientific and technical activities / 23,7 / 19,8 / 18,9 / 18,4
Administrative and support service activities / 29,7 / 26,4 / 21,1 / 22,6
Public administration and defence; compulsory social security / 22,0 / 20,4 / 14,9 / 17,6
Education / 28,9 / 25,8 / 24,4 / 24,9
Human health and social work activities / 31,5 / 28,4 / 24,8 / 25,4
Arts, entertainment and recreation / 37,1 / 34,0 / 31,1 / 31,9
Other service activities / 27,2 / 24,6 / 20,2 / 25,5
Activities of households as employers; undifferentiated goods- and services-producing activities of households for own use / 37,4 / 33,5 / 25,1 / 24,6
Activities of extraterritorial organisations and bodies / nd / nd / nd / nd
Source: Own calculation from LFS
During the crisis, temporary employment has shown a cyclical pattern. In the first phase there was a sharp reduction, largely because of theheavy job losses in construction and because industrial enterprises reduced temporary employment as a means of making a short-term adjustment. As this first adjustment is coming to an end, temporary employment is flourishing again (Figure 1), despite the fact that the two labour reforms of the period (2010 and 2012) made it easier and less expensive to dismiss employees on open-ended contracts. In part, this “recovery” of temporary employment can be explained by the increased activity in the sectors in which it is most common. In fact, there is some structural inertia (Toharia 2005), and in sectors in which temporary employment has been high, it is again increasing rapidly. Furthermore, the crisis has led enterprises and the public sector to use types of recruitment aimed at limiting the use of labour, and this translates into short-term contracts.
Figure1. Changes in employment, permanent and fixtermcontracts and part time work (2005Q1=100)
The most significant change has occurred in part-time employment (Figure 1), traditionally considered uncommon in the Spanish labour market, although there are indications that this is partly because informal employment(e.g. domestic cleaning, elderly care, etc., usually done informally by women and mostly part-time) has been undervalued. It is now an expanding form of employment and during the crisis it has shown strong growth, largely because companies have tried to reduce working time and minimize labour costs. Some sectoral studies (Castillo 2013; Moreno et al 2014) also note that part-time employment is used as a mechanism to force an increase in work rates by combining short-term contracts with stipulation of the tasks to be done, leading to an intensification of the rate. The growth of these jobs is often associated with outsourcing of activities to service companies or temporary employment agencies (very common, for example, in cleaning and hospitality). There is also evidence that this type of contract is being used as a way to avoid paying taxes and social contributions. In fact, it is fairly common for workers on a part-time contract to be actually working full time. All of this makes part-time work ideal for generating working poor and increasing the precariousness of employment (Blazquez and Moral 2013; Recio et al 2015).