Spain | Measures to promote permanent hiring

Summary

The reforms passed in early 2012 endeavoured to correct many of the endemic deficiencies in the Spanish labour market. But the current situation still requires additional measures. To promote permanent hiring and protect groups finding it harder to get a job, this document aims to combine an efficient simplification of the number of contracts with a substantial change in the severance payment system, in such a way that permanent contracts become the preferred option for both companies and workers. We propose a mixed system in which part of the severance pay will depend on how long the employee has worked in the firm and the rest on an employee’s savings account, similar to the Austrian model. This proposal would mitigate the uncertainty hampering permanent hiring, promote investment in specific human capital, increase productivity, incentivise labour and geographical mobility, encourage sectorial re-assignation of labour, and help to modernise collective bargaining. Finally, creating a capitalisation fund would make financial planning easier for companies, and would increase both worker savings and the incomes of future pensioners.

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