These reforms have addressed perceived rigidities in labor market regulation by lowering layoff costs, facilitating internal flexibility to raise productivity and reducing the power of sectoral-level bargaining agents to impose settlements regarding wages and working conditions on individual employers. The 2012 reform also included measures aimed to promote investments in human capital. Legislators have argued that these reforms will increase the speed of competitive adjustment while discouraging firms from responding to demand shocks primarily through employment levels. As a result, the gap between labor market insiders and outsider is expected to close.
While it is too early to draw definitive conclusions about the impacts of these reforms, one thing is already clear: the power of the traditional insiders in the Spanish labor market has been threatened like never before. In this paper, I will combine a close reading of the legislative reforms with insights derived from interview with key labor market insiders—unionists, representatives of employer associations and government officials—to clarify the politics underlying these reforms. In the paper’s conclusions I will offer a brief comparison with labor market reforms in other European countries before and during the current crisis.
