Experts foresee greater rigidity in contracts due to the labor reform and warn of hidden temporality

The labor reform has completely changed the hiring framework in our country.

Experts foresee greater rigidity in contracts due to the labor reform and warn of hidden temporality

The labor reform has completely changed the hiring framework in our country. The first data on the impact of the legislative change on the evolution of employment show a rapid increase in permanent contracts and a sharp reduction in temporary contracts that have brought the weight of temporary contracts in new firms to historical lows. However, after analyzing the figures for the first quarter, experts assure that the new contracting scheme will increase the rigidity of the labor market, and could even have harmful effects on the creation of jobs in the medium term.

However, despite the fact that the labor reform promoted by the Government is managing to reduce temporary employment, it is not guaranteeing an increase in the quality of employment of the new indefinite contracts, since many of them maintain the character of instability that they inherit from legislation such as it can be seen in the volume of hours worked -still below pre-pandemic levels-.

According to the second edition of the 'Human Capital Outlook-Quarterly Labor Market Observatory' prepared by the EY-Sagardoy Talent and Innovation Institute, together with Fedea and BBVA Research, which was presented this Wednesday in Malaga, the employment and the EPA after the entry into force of the labor reform "are very positive", although they should be put into perspective since only four months of statistics are available.

In the first four months of 2022, more than 1.7 million permanent contracts were registered. This represents one million more than in the same period of 2019 and nearly 800,000 more than in 2007. The weight of storms over all new contracts has been reduced by 38 points during the first four months of the reform, going from 90% in December 2021 to 52% in April 2022.

Thus, during the first quarter of this year, the total number of wage earners with indefinite contracts reached 12.8 million, its historical maximum to date, and the weight of workers with indefinite contracts in the total number of wage earners has risen by slightly more than one point in the first quarter, up to 76%. In absolute terms, comparing the first four months of 2022 with the same period in 2019, the registered number of new permanent contracts has increased by just over one million, while the number of temporary contracts has decreased by 1.8 million.

As might be expected, the reduction in temporary contracts has been concentrated in those of very short duration (which are now penalized with higher contributions) and in construction and service contracts, which disappear due to legal imperative. On the other hand, the indefinite contracts that increased the most were the so-called discontinuous fixed contracts, with intermittent periods of activity, which could be separated by many months, followed by the part-time indefinite contracts. In turn, full-time contracts have lost weight between the initial indefinite contracts and the contracts converted into indefinite contracts, in favor of discontinuous permanent contracts.

With these data on the table, Juan Pablo Riesgo, partner in charge of EY Insights, assured during the presentation that “it is early to draw conclusions about the impact of the labor reform. The conversion from temporary to part-time or discontinuity within the framework of a fixed-term contract does not necessarily guarantee an increase in the real quality of employment and could have a significant cost in terms of jobs.

Regarding the labor market, the study raises doubts since "we only have data on employment and hiring after the reform for four months and a single observation from the EPA that covers the first quarter of the current year", so it is necessary "greater prudence and have longer series when assessing the effects of the new regulations".

The analysis carried out from the data reflects that both the occupation of the EPA, as well as that of the Quarterly National Accounts and the affiliation to Social Security already exceed the levels registered in the quarter prior to the pandemic. However, neither the effective employment collected in the EPA, nor the hours of work reflected in the EPA and the QNA have yet reached the values ​​of the first quarter of 2019.

The recovery also continues, although with nuances depending on the variable considered and with a significant contribution from the public sector. In fact, employment in the public sector drives the number of employed, but the growth in hours worked is shared with the private sector. Employment rates are at historical highs if hours worked are not taken into account. At the same time, unemployment recovers its pre-pandemic levels, but long-term unemployment gains weight.

Regarding wages and, despite the inflationary rise, the report concludes that “wage moderation is maintained“. In fact, between 2020 and 2021, inflation increased by more than 3 points (from -0.3% to 3.1%) and the variation in nominal wages fell by almost 2 points, from 1.3% to - 0.6%«.

Although in the first four months of 2022 the historical maximum of indefinite contracts has been registered and there has been an unprecedented reduction in temporary contracts, the analysts of the 'Observatory of the Labor Market' point out that "the change in the type of contracts it does not ensure a real increase in the quality of employment and could have a cost in terms of its lower growth due to the increase in rigidity in temporary hiring».

Regarding the impact on the type of contracts derived from the reform, the publication highlights that the new law “is clearly reducing the weight of temporary contracts, penalizing or prohibiting their use. Given that the legal uncertainty and the cost of termination of indefinite contracts, both ordinary and fixed-discontinuous, continue to be greater than those of temporary ones, it is possible that part of the conversions do not take place and that some contracts are never concluded» .

In addition, the experts point out that “the permanent contracts that increased the most in relative terms are the so-called fixed-discontinuous contracts, with periods of intermittent activity, followed by permanent part-time contracts. In fact, the sum of fixed-discontinuous and part-time contracts in April reached 60% of permanent contracts formalized during the month. In both cases, workers accumulate fewer hours of work than in an ordinary full-time indefinite contract.

In the 'Legislative News' section, the publication highlights, among others, Royal Decree 152/2022, of February 22, which sets the minimum interprofessional salary for 2022. Within this legislative chapter, Martín Godino, partner director of Sagardoy Abogados, reflects on how to deal with employment pension plans by social agents and considers that "whatever the reasons that explain the lack of development of employment pension plans, this Government initiative to promoting them decisively must be received by all as good news and an opportunity«.

With regard to 'Trends in Human Capital', the study by the EY-Sagardoy Talent and Innovation Institute addresses a crucial issue for companies, such as the transformation and retention of the talent of their employees, and points out how companies in all sectors they are investing more and more in reskilling programs to transform their human capital and be able to retain talent.

The opening of the presentation ceremony was chaired by Fátima Báñez, former Minister of Labor and president of the EY-Sagardoy Talent and Innovation Institute; Elías Bendodo, Minister of the Presidency of the Junta de Andalucía; Carlos Rubio, president of the Malaga Port Authority, and Javier González de Lara, president of the Confederation of Businessmen of Andalusia.