By Belén Carreño

MADRID (Reuters) – Spain’s left-leaning government is close to a major shake-up of landmark pro-business labour reforms put in place after the sovereign debt crisis but which critics say eroded employee rights and stunted wage growth.

The new rules taking shape from months of negotiations with unions and employers would give more wage bargaining power to workers and revamp the temporary contracts that are widely used in the country’s services and construction-dominated economy.

These reforms are part of the package Spain has to provide by 2021 to the European Commission in order for EU pandemic recovery funding funds to be released.

According to a European source, Brussels is monitoring the provisions in order not to make Spain’s labor market too rigid. Spain had a 14.6% unemployment rate for September, which was EU’s highest.

In the aftermath of the crisis, Spain’s EU creditors and International Monetary Fund imposed the 2012 reform of Mariano Rajoy’s centre-right government.

Employers were able to bargain lower wages than the industry standard. This was a benefit that the tourism sector took advantage of. This also made it possible to agree on in-house wage conditions that Spain’s automobile assembly plants adopted quickly.

The reform had to be addressed by socialist Prime Minister Pedro Sanchez’s junior coalition partner Unidas Podemos (radical left) which was joined the government in last year.

However, the negotiations have produced some of the most heated exchanges to date between the social-democratic and communist elements of government that control the economy as well as the labor ministries.

Joaquin Perez Rey said that “the (new) reform aims at avoiding company agreements having primacy when it comes to setting wages.”

Companies are currently able to fix lower wages than what was agreed through collective bargaining at the sector level, where strong trade unions exist. This is the traditional method in Spain. If there’s an economic reason, they can also change their work schedules.

Unai Sordo (head of CCOO), Spain’s largest union, stated to Reuters that “we want to recover balance in labour relations, which deteriorated underneath the previous reform.”

Sordo stated that other elements of company-centred collective negotiation will still be respected and will allow for opt-outs in times of crisis.

MISSUSE OF TEMPORARY COMPTRACTS

Rosa Santos (the lead negotiator of Spain’s CEOE Employers’ Association) told Reuters that agreement on labour reform is still a ways off, as some important issues are being debated and could have an impact on companies’ internal flexibility.

She said that employers must accept a different formula for setting wages to eliminate “unfair competition.”

The table also includes measures to increase job security, and end precarity that critics claim means that millions of Spaniars lose their jobs each time there’s an economy downturn.

Spain, with 20%, has the largest proportion of European temporary workers. This is twice the EU average. They are usually the first workers to lose their jobs in the case of cuts and have lower severance wages.

It is proposed that the government eliminate temporary contracts in construction and other services and instead create a unique version that could only be used under extremely specific conditions.

These new contracts, according to the most recent government proposal, would last for up to 3 months. They cover peak times such as the year end holiday season, as well as busiest periods in Spain’s seasonal, agriculture-dependent, and tourist-heavy economy.

Perez Rey stated, “We need to distinguish between seasonal or temporary.”

Government wants to encourage seasonal workers to take advantage of a permanent contract. It allows them to get unemployment benefits while they are inactive, and without needing to leave the company. The form is already used widely in Spain’s Balearic Islands.

Another provision could be a permanent system similar to those used during global pandemic lockdowns. This would serve to prevent companies from experiencing any ecological or technological transitions.

CEOE Santos indicated that employers desire the scheme be flexible and easy to use. The unions and employers have rejected the original proposal of government.

“We would like a more flexible model like the German one,” said union leader Sordo, referring to the “Kurzarbeit” system under which workers are put on reduced hours in job protection schemes.

According to some labour market analysts, the plans will not be enough to overcome Spain’s inability to contract workers permanently.

    “Temporary and permanent contracts are communicating vessels, if you tighten one you have to make the other more flexible. If companies are not flexible enough to be competitive in a globalized market, they will lose the ability to do so,” explained Ignacio Conde Ruiz (Economy Professor at Madrid Complutense University).

According to a source familiar with the situation, the European Commission will accept a deal and allow the release of 2022 recovery funds. However, employers must be onboard. This could mean that the Commission is willing to sacrifice more flexibility in the market.