Transcript Targeted employment policies and partial labor market

Reforming an insider-outsider labor
market: the Spanish experience
Juan F. Jimeno
Research Division, Banco de España
Universidad de Alcalá
8 June 2012
Plan
1. The Spanish labor market performance, 2007-2012
2. Facilitating factors ?
1. 3. Labor market reforms, 2010-2012
Spanish Labour Market
Performance, 2007-2012
Main developments
•
Very high increase in unemployment, from 8% to 24.44%
(2012.Q1)
•
Very high job destruction
•
•
•
•
GDP vs. unemployment
Construction sector?
Temporary jobs?
Employment as the major margin of adjustment
1. Spanish labor market performance, 2007-2012
Very high increase in unemployment
1. Spanish labor market performance, 2007-2012
GDP growth vs. employment: The highest long-run response of
employment to output in the OECD
1. Spanish labor market performance, 2007-2012
The rise of unemployment: The contribution of the
construction sector
1. Spanish labor market performance, 2007-2012
The rise of unemployment: The contribution of debt
1. Spanish labor market performance, 2007-2012
The rise of unemployment: The contribution of temporary jobs
1. Spanish labor market performance, 2007-2012
Volatility: The highest long-run response of unemployment to
output in the OECD
IMF World Economic Outlook, April 2010.
where: Dynamic Beta=(β0 + β1)/(1- γ1), from Δut=α + β0 Δyt + β1 Δy t-1 + γ1 Δu t-1 + εt
1. The need for reform
The rise of unemployment: Okun’s coefficient
Probability of high (-1.6) vs. low (-0.6)
0
0.9
-0.1
0.8
-0.2
0.7
-0.3
0.6
-0.4
0.5
0.1
2011
2009
2007
2005
2003
2001
1999
1997
1995
1993
1991
1989
1987
1985
1983
0
1981
19
88
19 .1
89
19 .3
91
19 .1
92
19 .3
94
19 .1
95
19 .3
97
19 .1
98
20 .3
00
20 .1
01
20 .3
03
20 .1
04
20 .3
06
20 .1
07
20 .3
09
20 .1
10
.3
-0.8
0.2
1979
-0.7
0.3
1977
-0.6
0.4
1975
-0.5
1. Spanish labor market performance, 2007-2012
Other margins of adjustment?
1. Spanish labor market performance, 2007-2012
Breaking-down changes in unemployment
10
8
6
4
2
0
-2
-4
-6
-8
GDP growth
Productivity growth
Hours per worker
Labour force
Du (year-to-year)
1. Spanish labor market performance, 2007-2012
Facilitating factors? (Q&A)
0. Some (weak) empirical results on structural reform
Saint-Paul (2002): (a) No strong relationship with the cycle, except for
marginal reforms and affecting the flexible tier. (b) Exposure: reforms
happen when unemployment is rising (not just if high). (c) Acrossthe-board reforms are undertaken by right-wing governments
Duval and Elmeskov (2005): (a) Economic crises and high unemployment
induce reforms. (b) Absence of monetary policy autonomy is
associated with lower structural reform activity. (c) A sound fiscal
balance may help. (d) Reforming one area helps reform in others.
Høj et al. (2006): (a) Big economic crises are associated with higher
overall reform, but for job protection and benefit systems they
happen in strong upswings. (b) Governments in office for some time
are more able to reform, but on average left-of-center governments
reform less. (c) and (d) as in Duval and Elmeskov
2. Facilitating factors?
1. Serial reformers?
Main reforms
1975 Franco’s legacy: High severance pay (SP) and judicial
protection, no collective bargaining (CB), low
unemployment insurance (UI)
1980 Workers’ Statute: New institutions (SP, CB, UI)
1984 Temporary labor contracts regulation relaxed
1992 Reduction in generosity of unemployment benefits
1994 Restrictions on temporary contracts, more scope for
collective bargaining
1997 New permanent contract with lower severance pay
2002 Firms allowed to dismiss at penalty severance pay
without advance notice and without going to court
2. Facilitating factors?
1. Serial reformers?
Q: Are the frequency and/or the intensity of reforms comparatively high?
Employment protection legislation reforms of specific aspects (% of total)
Source: Fondazione Rodolfo Debenedetti–IZA Social Reforms Database
(www.frdb.org). See Boeri (2010).
A: The frequency and intensity of reforms are both similar, and if
anything, reforms are less structural and more discrete in Spain
2. Facilitating factors?
2. Political support for reform?
Q: Exposure of insiders? (Saint-Paul, 1993)
Employment growth rate
(% variation on a year before)
15
15
10
10
5
5
0
0
-5
2006-I
2007-I
2008-I
2009-I
2010-I
-5
-10
-10
-15
-15
-20
-20
-25
-25
Temporary
Permanent
A: Limited employment losses of insiders, even after 2 years into the recession
2. Facilitating factors?
2. Political support for reform?
Q: Median voter shift? (Dolado, García-Serrano, and Jimeno, 2002)
Indicators of political viability of labor reform
(share of employees plus unemployed)
65
65
50
50
35
1987-II
35
1990-II
1993-II
1996-II
1999-II
2002-II
2005-II
2008-II
Temporary and unemployed
Temporary, 33-day Permanent and Unemployed
A: Still below a clear majority
2. Facilitating factors?
2. Political support for reform?
Q: Voter attitudes favoring reform? (Dolado, Felgueroso, and Jansen, 2010)
Spain
EU-15
Population 16 years old and over
61.2
71.2
16-24 years old
64.9
71.2
55-64 years old
58.8
68.6
Self employed
67.2
77.4
Managers
62.2
68.5
Professionals (employees)
65.3
73.6
Low-skill employees
69.3
71.2
Unemployed
69.6
72.6
Percentage share of people over 16 y.o. who agree with the statement: “Contracts
should be more flexible to incentivize job creation”, Eurobarometer, May-June 2009
A: Groups more in favor or reform are not the most influential
2. Facilitating factors?
Two-tier labor market
Temporary jobs as a share in employees (%)
35
35
30
30
25
25
20
20
15
15
10
10
5
5
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Italy
France
EU (15 countries)
Portugal
Spain
2. Facilitating factors?
Wage bargaining and the cycle
GDP, Employment, and Real Bargained Wage Growth (%)
4
4
2
2
0
0
-2
-2
-4
-4
-6
-6
-8
-8
2007Q1
2007Q3
2008Q1
GDP
2008Q3
Employment
2009Q1
2009Q3
2010Q1
2010Q3
Bargained real wage
2. Facilitating factors?
Q: Why has there been no (pressure for) labor reform in the other GIPSI countries?
OECD Harmonized unemployment rates (s.a., %)
20
20
18
18
16
16
14
14
12
12
10
10
8
8
6
6
4
4
Q3-2007
Q1-2008
Greece
Q3-2008
Ireland
Q1-2009
Portugal
Q3-2009
Spain
Q1-2010
Q3-2010
Italy
A: The size of the unemployment problem is much higher in Spain
2. Facilitating factors?
Labor market reforms, 2010-2012
The trigger: Financial market pressure
Differential yield between Spanish and German 10-year bond
Labor reform decree
EU rescue
funds / Spanish
budget cuts
2
Irish crisis deepens
First labor
reform
proposal
1
Start of
Greek crisis
0
3. Labor market reforms 2010-2012
The Government’s position and the outcome
Position
•
During the Great Recession the Spanish Socialist Government
organized negotiations with the employers’ association and labor
unions, which were portrayed as the source of labor market
reform, but they stalled for 2 years
•
Debt crisis. External pressure (May 2010)
Outcome
•
•
Reform in many steps: June 2010 Decree, September 2010, June
2011 Decree, and many other small legislative changes (up to a
total of 11 ¡¡¡)
New new reform, Feb 2012, in effect but still being discussed at
3. Labor market reforms, 2010-2012
the Parliament
Reform (I). A limited modification of employment contracts…
Key measures
1. New permanent contract: Severance pay reduced to 33 days of
wages per year of service, without going to court (previously 45
days through disciplinary dismissal)
2. Temporary contracts: Gradually increasing severance pay from 8
days w.p.y.s. to 12 days in 2015
3. Labor market reforms, 2010-2012
Reform (II)… and of the regulation of collective bargaining
Key measures
3. Collective bargaining:
1.
firms under stress can opt out of the industry collective-bargain
wage level with agreement of workers, but must go back to it in no
more than 3 years
2.
Firm-level collective agreements may prevail over sectorial
agreements, under some conditions.
3. Labor market reforms, 2010-2012
Reform (III). Very limited, and also contradictory in some dimensions
It includes measures that labor unions dislike, but it was made
more palatable by reducing its scope, in particular by:
Leaving almost unchanged the two most important institutions
generating high and volatile unemployment, but which
benefit both employers and labor unions:
 Two-tier labor market (Saint-Paul, 2000)
 Regulation of collective bargaining
Introducing insider-protecting measures: Subsidies for reduced
hours (as opposed to dismissals)
3. Labor market reforms, 2010-2012
New new Reform: Towards “internal devaluation”
•
Main focus on firing costs internal flexibility:
▫
▫
▫
▫
•
Significant reductions in firing costs
Redefinition of economic dismissals
Elimination of administrative approval of collective dismissals
Easing of opting-out from collective bargaining agreements
More employers’ discretion to change wages, other employment conditions
Not completely addressed:
▫
▫
▫
Duality. Temporary vs. Permanent
Productivity-enhancement
Active Labor Market Policies
3. Labor market reforms, 2010-2012
Final Comments
Conclusion
The extraordinary rise in unemployment in Spain in the Great
Recession was insufficient to trigger labor market reform
Reform only became politically viable when, additionally, the
risk premium on Spanish debt increased sharply
Internal political-viability constraints still mattered, since they
limited the scope of the reform and affected its contents,
leaving important unemployment-inducing institutions
unaltered
Finally, a deep, incomplete reform in 2012
4. Final comments
References
•
•
•
•
•
•
•
•
Boeri (2010), “Institutional Reforms and Dualism in European Labor Markets”,
Handbook of Labor Economics, vol. 4B, Elsevier (forthcoming).
Dolado, Felgueroso, and Jansen (2010), “La percepción de seguridad del empleo
y la demanda de flexibilidad en España”, in Dolado and Felgueroso (eds.),
Propuesta para la Reactivación Laboral en España, Fedea.
Dolado, García-Serrano, and Jimeno (2002), “Drawing Lessons from the Boom of
Temporary Jobs in Spain”, Economic Journal.
Duval and Elmeskov (2005), “The Effects of EMU on Structural Reforms in Labour
and Product Markets”, OECD Economics Department WP 438.
Høj, Galasso, Nicoletti, and Dang (2006), “The Political Economy of Structural
Reform”, OECD Economics Department WP 501.
Saint-Paul (1993), “On the political economy of labor market flexibility”, NBER
Macroeconomics Annual.
Saint-Paul (2000), The Political Economy of Labour Market Institutions, Oxford
University Press.
Saint-Paul (2002), “Macroeconomic Fluctuations and the Timing of Labour
Market Reforms”, CEPR WP 3646.
Thank you
for your attention!