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Antonio Moreno, Ph.D., Columbia University, University of Navarra, Spain

Create employment now

Mon, 12 Sep 2011 14:44:50 +0000 Published in

One might think that in the current circumstances, the Spanish government -the current or the next one- has no room for maneuver to create employment. Compared to the last two decades, interest rates are already close to zero, financial conditions are clearly worse, international demand is in a moment of uncertainty and the private sector is much more indebted. And, obviously, fiscal adjustment is more necessary than ever in order to solve the public debt imbroglio in Europe, which is having a very negative effect on the flow of credit . Added to this situation is a fundamental principle that Obama has just recalled when presenting his plan for employment: it is companies that must create employment, not governments.

Undoubtedly, our Achilles heel is the productive model , and competitiveness must be promoted at all levels. That said, in the short term deadline, a new deepening of labor market reform could begin to be effective.

Since the beginning of the crisis, employment has fallen faster than GDP. This has been due to the large number of temporary contracts in our Economics, which has configured a dualism in our labor market. Despite the fact that temporary employment increases the issue number of hires, it also encourages layoffs. For the net effect to be positive, it seems necessary to equalize firing costs between permanent and temporary workers; that is, to reduce firing costs for permanent workers. This would provide an incentive for permanent contracts and more shifts from temporary to permanent positions. Even more important is the flexibilization of real wages. Since the crisis, we have watched with astonishment as the average of real wages has risen at the same time as employment has been massively destroyed. In other words, the labor market has adjusted via quantities in exactly the wrong direction. A future decline in real wages could be compensated by more employment, so that the net effect could be stimulating in consumption, item core topic of GDP, which would induce a virtuous cycle of income, employment and tax revenue. Finally, more incentives to work should be provided to the working population, for example by penalizing rejected work offers. At final, we cannot waste the most important capital of our Economics, people.

All this requires the social partners to pull in the same direction: government, taking the initiative, trade unions with an open mind, and employers - technically better trained than ever - with an eye to the common good.