Friday, June 4, 2010

Are we heading towards the Spanish model of employment?

Jaime Levy Moreno over at LVMI writes the following sobering thoughts on the Spanish labor market:

For the last ten years, and especially since the recent financial crisis started, Spanish unemployment has risen astronomically, reaching a record of around 20 percent. This, of course, does not count the thousands of illegal immigrants, who don't appear in the official state statistics...

The headline unemployment rate we get fed by our government is useless too. But here's the real kicker regarding employment:

...In order to explain why it is so hard for recent graduates to obtain a decent job in Spain, it is important to know that labor costs are very high for employers — a consequence of strict laws that protect workers. Four weeks' vacation a year is the mandatory minimum. An artificially high minimum wage places a floor under the supply of workers and the demand for jobs, creating a devastating imbalance. This means there is a huge demand for jobs and little desire on the part of employers to fulfill it.

Additional reasons for the lack of job offers in Spain include the excessive finiquito, the final pay a worker is entitled to under Spanish law when fired: 45 days of salary for each year worked at the company. Furthermore, taxes on employers are very high — at least a 50 percent of each worker's annual salary, which means that if someone is paid €20,000 a year, it costs their employer at least €30,000 a year to hire them. All this makes an employer very reluctant to hire an employee, which creates a high rate of unemployment and a huge number of "garbage contracts." These taxes also promote black-market activity, which either sidesteps the established rules or ignores them altogether.

The taxes on employee wages are very high as well, which brings us back to the mileurista social status. These taxes create a substitution effect: firms have become desperate for new technologies to reduce labor inputs. One recent example in Spain is McDonald's move to start substituting workers with new machines that take the order for the customer, reducing the number of workers. The goal is to leave only two sets of employees — the ones in the kitchen and ones that hand the food to you at the counter.

The lesson here is that the harder and more expensive it is made for employers to hire, the less jobs will be created. Unfortunately, we have too many in the political class that believe that having the sort of "safeguards" that Spanish firms have to deal with is acceptable and a matter of fairness. Of course, what they don't tell you that there is a cost to implementing these labor regulations---less jobs.

2 comments:

Don E. Chute said...

W.W.--

It's amazing. We move closer to Europe/South America socialized Government. Crime Inc.(Obamanation). Puts, the foot harder on the accelerator.

We know it's wrong. The folks in EU/So America, know it's wrong. But, our Progressives know they can do it better, with better results.

May God help us. But first, we must help ourselves. Voteucate!

PLU!

VH said...

Sadly, you are right. It seems that we have a population of people that admire the welfare-states as being a model for the U.S. What they don't understand is that the reason that the U.S. has been such economic powerhouse is because we ARE NOT like those countries.