The IMF insists on relaxing the dismissal and calls for caution when addressing increases in the SMI or reduction of working hours

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

As reflected in its final statement by the mission of the International Monetary Fund (IMF) that visited Spain within the framework of Article IV, although the 2021 labor reform managed to lower the temporary employment rate by more than ten percentage points, to the average level of EU, “additional policies are needed” to achieve greater stability of employment in a broad sense. In this sense, despite the impact of the reform on duality in the labor market, IMF technicians consider that its general impact on the transitions from employment to unemployment “is less clear” and they propose, looking to the future, “relax employment protection legislation“, including reducing uncertainty around dismissal costs, in order to incentivize employers to enter into permanent indefinite contracts.

Other measures proposed in the document aimed in this regard would be increase contributions for unemployment benefits by those employers with higher staff turnover, which could discourage excessive transitions between activity and inactivity under permanent-discontinuous contracts, which in turn should be subject to more precise monitoring, while restricting the use of temporary contracts in The public sector, as planned, would also contribute to continue reducing the temporary employment rate. Likewise, the IMF mission considers it necessary reinforce active employment policies (PAE) and improve incentives for accepting job offers in order to reduce the still high structural unemployment in Spain.

Caution with new labor measures

In particular, IMF technicians warn that, after rising more than 50% in the last five years, the minimum wage has reached the goal set by the Government of 60% of the average wage and emphasize that any additional increase should take into account take into account the possible detrimental effects on low-skilled employment and be guided by the recommendations of the Advisory Commission for the Analysis of the Minimum Interprofessional Wage, which they ask to give more autonomy and institutional weight. Regarding the housing market in Spain, where prices have experienced a moderate increase, the IMF mission considers that to improve affordability the Spanish authorities “should prioritize stimulating supply, rather than distorting support for demand.” In this sense, it highlights the progress of the Government in its efforts to expand the housing supply, taking advantage of non-refundable transfers from the ‘Next Generation EU’ (NGEU) funds to finance the development of affordable housing on public land and the expansion of the social housing stock, which is currently small. Regarding the introduction of caps on housing rental prices in stressed areas, contemplated in the Housing Law of 2023, which so far have only been implemented in some parts of Catalonia, the document recalls that previous experiences suggest that caps on rental prices Rentals can reduce the supply of rental housing and limit access for the most marginalized groups.