IMF urges easing of layoffs and calls for caution in addressing increases in SMI or reductions in working hours

The International Monetary Fund (IMF) has highlighted the impact of the latest labor reforms on temporary employment in the Spanish labor market, although it considers additional measures are necessary to tackle duality and achieve greater stability, for which she proposes a relaxation of labor protection, while warning of the need to carefully evaluate the effects of additional increases in the minimum wage or a reduction in the working day.

As shown in the final statement of the International Monetary Fund (IMF) mission that visited Spain under Article IV, the 2021 labor reform has indeed succeeded in reducing the temporary employment rate by more than ten percentage points to the average level. of the EU “additional policies are needed” to achieve greater employment stability more broadly. In this sense, despite the impact of the reform on labor market duality, IMF technicians believe that its overall impact on the transition from employment to unemployment ‘is less clear’ and they propose, looking to the future : ‘relaxation of labor protection legislation“, including reducing uncertainty around dismissal costs, to encourage employers to enter into indefinite-term contracts.

Other measures proposed in the document would be aimed in this regard increase in contributions for unemployment benefits by employers with higher turnover, which could discourage excessive transitions between activity and inactivity under permanent-discontinuous contracts, which in turn should be subject to closer supervision, while the use of temporary contracts in the public sector, as planned , could also contribute to further reducing temporary employment, just as the IMF mission considers necessary strengthen active employment policies (PAE) and improve incentives for accepting job offers to reduce Spain’s still high structural unemployment.

To this end, they point out that the 2023 Labor Code is “a step in the right direction”, but believe that to make decisive progress, activation requirements need to be strengthened and active and passive employment policies better integrated via the convergence towards one ‘one-stop-shop’ modelThey also emphasize the existing margin to increase PAE expenditure and improve the effectiveness of the regional Public Employment Service agencies by strengthening the link between their resources and their employment performance. would “accelerate” the end of unemployment by rising incentives to accept job offersas envisaged in the proposal to reform unemployment benefits, which aims to make subsidy benefits compatible with labor income.

Caution with new labor measures

In particular, IMF technicians warn that the minimum wage, after increasing by more than 50% over the past five years, has reached the government’s target of 60% of the average wage and emphasize that any additional increase must be taken into account take into account the possible harmful effects on low-skilled employment and be guided by the recommendations of the Advisory Committee on the Analysis of the Interprofessional Minimum Wage, which they call to give more autonomy and institutional weight. On the other hand, they point out that “if not designed correctly”, the planned reduction of working hours in the private sector could increase labor costs and reduce workers’ output and income in the long run. Therefore, they recommend guiding the reform of “salary moderation” as well as addressing heterogeneity between sectors through collective bargaining to limit these negative effects.

They also point out that, if any reduction in working hours is considered in the public sector, it should be proportionate to the smaller gap between effective working hours and the proposed legal standard.

Regarding the housing market in Spain, where prices have seen a moderate increase, the IMF mission believes that in order to improve its affordability, the Spanish authorities should “give priority to boosting supply, rather than disrupt support for demand.” its efforts to expand housing supply stand out, using the non-refundable transfers of the ‘Next Generation EU’ (NGEU) funds to support the development of affordable housing on public land and the expansion of the social housing stock finance. Regarding the introduction of ceilings on the rental prices of housing in less favored areas, as contemplated in the Housing Act of 2023, which have so far only been implemented in some parts of Catalonia, the document recalls that previous experiences suggest that rental ceilings can reduce rental prices . supply of rental housing and limits access for the most marginalized groups.