labour reforms

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Labour reforms in Europe, more sound than substance?

On Friday, 10/2/2012, Spain has announced several labour reforms approved by the cabinet. Spain’s unemployment stands at 23% and 50% for those under 25 year olds. The policies were mainly targeted to make firing cheaper for companies.

In an attempt to reduce cost of firing, these include:
Reducing from 45 days per year of work entitlement to 33 days.
Capping the maximum firing payout to be 24 months rather than 42 months

In an attempt to create jobs, employers will get €3000 tax breaks if a company hire less than 50 people and hires a new worker under 30 years old seeking the 1st job.

As expected, some people came out to protest the changes. Among the 500 people in Madrid protesting, it turned from a peaceful protest into violence.

In terms of job creations, these measures are targeted to reduce cost of firing that may not affect hiring. Having said that, many have said that these are long overdue changes.

In contrast, France has announced end of January 2012 that it planned to cut cost of hiring that will save enterprises €1b3n. And to fund these, they will increase VAT or known in France as TVA from 19.6% to 21.2%.

While reducing cost of hiring that is at a staggering 55% will encourage hiring, according to a report by Morgan Stanley, this impact will be reduced by inflation.

In both Spain and France, these changes will not be effective until after November 2012. In Spain’s case, it has to pass through parliament and in France, it will depend on the presidential elections in April this year.

What I don’t understand is that while politics is relatively short-term at 4 or 5 years, they attempt to make policies that are long term. There is nothing wrong with long term policies but the market has moved swiftly and short term measures will be required.

In a bid to relax labour laws to encourage hiring, have there been considerations for laws that will be in place for 2 years while the economic crisis is still in placed?

In a recent report by Financial Times, youth unemployment has more than doubled in many countries since 2008. Some of the measures could have been in place to encourage youth hiring or open up the job market at a time when companies are exercising constraints.

For example, reduction in social charges can be applied only to companies who qualify such as proving net hiring to be above rate of natural turn over, e.g. 5%. And reduction in social charges can be staggered and encourages companies to reduce work hours, apply for reduction in social charges before finally conducting redundancy firing.

I’m no politician or pretend to know what is best in a very complex region. In the private sector, there are round tables for exchanges of ideas. In politics, are leaders talking to each other for ideas? And do we really have to wait for election to be over for changes? If that’s the case, many will have to wait till 2013 or 2014 because this year, countries expecting a change in power include United States, France, China, Taiwan, Russia among others.

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