The Bank of Spain has dedicated a chapter of its annual report to the labor market. In it, the monetary institution's team of analysts recommends “reconsidering” current policies in the face of the unemployment rate “persistently higher than those of other countries in our environment, technological changes and the aging” of the population. Among its proposals, the report includes “extending working life” and “policies” that favor “the arrival of immigrants,” along with other recommendations.

The truth is that the Bank of Spain's analysis begins by highlighting that “the main characteristic of the recent behavior of the labor market has been the considerable dynamism of employment (that is, the significant creation of jobs since 2021).” Likewise, it recognizes that, since the approval of the 2021 labor reform, “the temporary employment ratio has been intensely reduced.”

On the other hand, “work productivity has barely increased since the beginning of the pandemic” and, “despite the vigor observed in job creation (our country is close to the record of 21 million workers enrolled in Social Security), The unemployment rate (close to 12%) continues to be excessively high,” the institution states.

“Looking to the future, the technological and demographic changes underway could cause a profound transformation of the labor market, with very relevant implications for the demand and supply of work and for the employability and productivity of certain groups,” he adds.

Work more years

Among the institution's recipes to solve the structural problems of “high unemployment” and “low productivity” and face the changes that are coming, it is stated that “the lengthening of working life should be encouraged.” The proposal stands out as contradictory.

As observed in the report, “so far this century, the average age of employed salaried workers in Spain has increased by approximately 6 years – from 37.5 to 43.5 years – while that of employed non-salaried He has done it in 4 years—from 44 to 48 years.” This “aging” of workers has a “negative impact on the rate of advance of the aggregate employment rate and productivity and, therefore, on growth,” says the same institution.

However, “the lengthening of working life, which is already occurring, also contributes to reducing some of the adverse effects of population aging on the labor market,” says the Bank of Spain.

Although he then lists a list of problems with this trend. On the one hand, “although there is still a certain margin to continue extending the working life of Spanish workers over time, this process faces some limitations, such as those related to the health status of older workers.”

On the other hand, “older workers are not perfect substitutes for younger workers, since their professional qualifications, skills and work abilities are different.”

immigration

Along the same lines, the Bank of Spain points out that the recovery of migratory flows, which were very negatively affected by the pandemic, has contributed significantly to the recent vigor of employment in our country. Looking to the future, “it would be desirable for migration policies to proactively anticipate the hiring needs that will be generated in the Spanish labor market as a result of future retirements and to favor the arrival of immigrants who can satisfy these job demands.”

“In Spain, the average age of employed foreign nationals is 3.4 years lower than that of nationals. However, immigration cannot be expected to completely solve the problem of generational change of workers in our country,” he explains.

Reduction of working hours

The report also addresses the Coalition Government's proposal to reduce working hours and relates it to work productivity. The institution's conclusion is that “it would be desirable for different companies and sectors to have ample flexibility to accommodate said regulatory change if they want to avoid the possible negative effects of this measure on labor costs, productivity and the aggregate level of employment.” and activity.”

“In Spain, since 1983, the legal working day has remained at a maximum duration of 40 hours per week. However, the average working day has fallen appreciably. Thus, according to the EPA, between 2005 and 2023 the reduction in the agreed weekly hours in the main and full-time job was 48 minutes, down to 38.91 hours per week. For its part, in the same period, effective hours fell by 3.1 hours, to 33.1 hours per week,” states the Bank of Spain.

“The drop observed in the length of the average working day has been very heterogeneous by sectors and companies, which has allowed said day to be adapted to the specific characteristics of the companies, to their unequal effects on productivity and labor costs and workers' preferences. This heterogeneity must be maintained for the future,” he points out.

Productivity and wages

In the debate on productivity, the report repeats the 'mantra' of stagnation and the gap with the rest of advanced economies, if measured as GDP (Gross Domestic Product) in relation to hours worked (the most common way of measuring work efficiency, although its many deficiencies were explained in this information and an alternative calculation was presented in this one).

I mean, we are talking about work productivity. “International evidence from recent decades indicates that real wages grow more intensely in those economies where productivity is more dynamic,” says the report. Although it detects that in Spain salaries have not accompanied the improvement in productivity at the same rate as in the rest of the major world economies, but rather falling further behind, as seen in the graph.

“The reasons behind this gap have been and continue to be the subject of exhaustive analysis by the economic literature, although this does not yet offer conclusive results regarding the relative importance of each of the possible explanatory factors,” confess the experts from the Bank of Spain.

“Among the main determinants analyzed, technological changes stand out, which could have shown in recent decades a greater degree of complementarity with the capital factor than with the labor factor.” That is to say, “capital” has kept a larger portion of the 'pie' of increasing workers' efficiency.

“The process of globalization of economic activity has also received a lot of attention from researchers, which would have generated a certain relocation of the most employment-intensive activities and reduced the bargaining power of workers in advanced economies.” Less power of unions.

“Another aspect that has been highlighted in the literature as a possible cause of lower wage growth compared to the advance of productivity would be related to greater monopsony and monopoly power on the part of companies, in a context in which, as has been mentioned, the bargaining power of workers could have been reduced,” they continue.

“Finally, the importance of the intense changes that have been taking place in the composition of the employment offer has also been highlighted, for example, in terms of the aging of workers, the incorporation of women into the labor market and immigration,” the authors of the report emphasize.

Other proposals

Other proposals made by the Bank of Spain are to improve active labor market policies (training and labor intermediation), since “they are especially necessary to accommodate the disruptive effects of technological changes on employment and to increase the employability of workers.” older.”

It also addresses that “unemployment benefits must offer adequate protection to the unemployed, without damaging the incentives to search for employment and labor mobility.” While he considers that “to promote the necessary occupational reassignment of employment, it would be appropriate to continue advancing in the definition of the objective causes of dismissal and in the reduction of the uncertainty associated with these processes.”

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