The IMF Warns the Government in Spain
“Employment growth was substantially higher after the 2012 labor reform than the estimated growth if the reform had not been implemented,” says the agency.
The IMF believes that the 2012 labor reform has had a highly positive effect on the Spanish economy, and that the inefficiencies of the labor market are due to its structural problems or the transformation of the economy itself.
That is the opinion of a working paper published today by the institution. Although these types of studies do not constitute the Fund’s policy in relation to member countries, they are one of the bases on which that policy is structured. This report also arrives, just two weeks before the institution’s officials visit Spain and meet with the Government as part of their usual supervision of the economies of the member countries.
The study concludes that the reform has been key to increasing job creation in Spain. This has not only contributed to the fall in unemployment, but has accelerated economic growth, which in turn has created more employment. Keep in mind that the increase in productivity in Spain has traditionally been very low. And, if workers are not more productive, the only way to grow GDP is by making more people work.
The Spanish labor market, with its very high unemployment rate despite the fact that the country has been growing above the average of the surrounding countries for decades (with the exception of the 2010-2013 crisis) is a reason for fascination for Economists around the world. In fact, employment in Spain is something so extraordinary (for worse) that the biggest problem for experts is to establish models that explain it.
The analysis of the Fund is entitled ‘Distributional Implications of Labor Market Reforms: Learning from Spain’s Experience’ (‘Redistribution Implications of Labor Market Reforms: Learning from the Experience of Spain’). It is a title that seems designed to scare the reader. But, with the exception of the reference to the analysis methodology, its findings are familiar to anyone who follows the social and economic news of Spain.
The Fund, for example, detects a possible increase in income inequality as a result of the 2012 labor reform, although the institution admits that there is no definitive evidence. If inequality is measured between 20% of workers with more income and 20% of workers with less, inequality has increased. However, when the so-called Gini index is applied, which is a more complete indicator of inequality than mere income verification, no changes are observed. That suggests that the increase in inequality has been very low, if it has occurred.
Other changes in the labor market seem likely to be due to the transformation of the economy since 2012. Thus, the percentage of workers who have part-time employment but who would like to have it full-time has increased. The IMF believes that this is mainly due to the fall in the weight of construction – which normally employs full-time workers – in favor of services – where part-time employment is more common – although the report acknowledges that it is It is necessary to study the problem further.
Finally, the study points to an increase in families in which, although at least one of its members has a job, they are at risk of falling below the poverty line. The reason, according to the Fund, is not so much the labor reform as the deficiencies of the Spanish Welfare State, which were analyzed in another agency report two weeks ago.
From the IMF study it follows that the problems of the Spanish labor market are not due to the reform, but are linked to low productivity, fragmentation of the internal market due to autonomy and inefficiency of public assistance to population segments With lower incomes. Although the document does not include, as explained above, economic policy requirements, the obvious conclusion drawn from its reading is that going back in the 2012 reform, as the Government has suggested, would be a mistake. Avoiding the growing fragmentation of the internal market and restructuring aid to the population with lower incomes are much more effective measures.