Page 40

B Y S I N DH U R A C H I T T U R I ( W ’ 13)

EUROPE:

SPAIN & THE CASE FOR LABOR REFORM Gran Via Street in Madrid, Spain, at night.

S

pain’s economy continues to lag

country had been shaken by the bursting of

behind many of its European peers.

its construction bubble. But the bust alone

The country’s unemployment rate of

cannot explain the country’s economic woes.

20% is the second highest in the European

Much of the answer lies in the country’s

Union behind Latvia’s. Furthermore, Spain’s

antiquated and infl exible labor market.

youth unemployment rate makes the overall

market

is

commonly

comparison. Half of all Spaniards under the

labor market, permanent workers receive

look

minuscule

age of 25 are out of work. Spain’s deficit to

secure

GDP ratio was about 7.9% in 2009, more

Government regulations make it very costly

than twice the European Union’s limit of

for employers to fi re these workers. Until this

3%. As a result, Spain is widely referred to

June, permanent workers received severance

as one of the PIIGS (Portugal, Italy, Ireland,

payments of up to 45 days in wages for each

Greece, and Spain), a rather unflattering

year worked. Meanwhile, temporary workers

designation for Europe’s reckless spenders.

comprise the lower tier of the labor market.

What is difficult to believe is that just three

They work on short-term contracts and can

years ago, Spain’s economy was one of the

be fired at will. Most of Spain’s temporary

strongest in Europe. In 2007, the country’s

workers are immigrants or young adults

unemployment rate was only 8%, high by

and make up about a third of Spain’s

American standards, but low compared to

workforce. While some temporary workers

its European counterparts’.

are eventually able to secure permanent

from grace? For starters, the global fi nancial crisis of 2008 hit Spain at a particularly inconvenient time, just a year after the

111210 hq.indd 40

labor

referred to as two-tier market. In a two-tier

rate

How do we explain Spain’s rapid fall

40

Spain’s

in

unemployment

I N T E R N AT I O N A L B U S I N E S S R E V I E W

employment

and

good

benefi ts.

jobs, many work contract to contract with frequent bouts of unemployment. When

the

economy

fi rst

entered

a

recession in 2008, the government responded

FA L L 2 0 1 0

11/27/2010 3:13:14 PM

International Business Review - Fall 2015  

Fall edition of the IBR magazine at the Wharton School.

International Business Review - Fall 2015  

Fall edition of the IBR magazine at the Wharton School.

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