IMF calls for more labour market flexibility in Spain


In the concluding statement of the IMF’s annual "Article IV" mission to Spain, issued on Tuesday, the Fund praised Spain for the actions it has taken towards deregulating labour markets and reducing fiscal deficits despite its recession, such that "key imbalances are correcting rapidly."

However the report ignores the clear recessionary impact of the wage moderation and austerity policies it has urged Spain to adopt.

Instead it blames "strong headwinds", chiefly sharply contracting private credit and high lending rates, for the fact that GDP has contracted for seven quarters and unemployment has reached 27 per cent.

One of the statement’s main policy recommendations for Spain, which does not have a lending agreement with the IMF, is that "labor reform needs to go further" despite the "substantial improvements" from last year’s reforms.

It says that "deeper reforms of collective bargaining may be needed" and that "insufficient progress has been made in reducing the damaging divide between permanent and temporary contracts".

The Fund’s report suggests: "A mechanism should be explored to bring forward the employment gains from structural reforms", the main element of which would be "employers committing to significant employment increases in return for unions agreeing to significant further wage moderation".

However the IMF, which frequently acknowledges that labour market institutions are not among its "core areas of expertise", does not explain how the substantial weakening of coordinated collective bargaining that has occurred in Spain, in part because of the Fund’s push for completely decentralized bargaining, would allow the development of jobs-for-wage-restraint pacts to any significant degree.

(Please see section 3.3 of the ITUC’s April 2013 Frontlines Report for more information about the IMF’s recommendations for decentralizing collective bargaining in Spain.)

The concluding statement of the IMF’s Article IV Consultation mission to Spain (five pages) is available in English and in Spanish.