Photographer: Miguel Riopa/AFP via Getty Images

Why 1 Million New Jobs in Spain May Be Bad News

Spanish companies are hiring, but nearly all the jobs are temporary and poorly paid. That's likely to depress productivity and discourage new employers who could offer stable, better-paid jobs.

Spain created about 500,000 jobs last year, more than any euro zone country except Germany. With the economy forecast to grow a healthy 2.9 percent in 2015, Prime Minister Mariano Rajoy predicts another 500,000 jobs will be created by year's end—evidence, his government says, that Spain is benefiting from reforms enacted in 2012 to make its labor market more flexible and competitive. 

But the bad news for workers is that nearly all these new jobs are short-term, low-paid, and dead-end—what the Spanish call trabajo basura, or garbage work. Government data show that 92 percent of the positions being created are temporary, with some lasting only a few days. One-fourth of labor contracts signed during the first three months of 2015 were for one week or less. Spanish temps make an average 12,000 euros ($13,300) annually, about half what's earned by people with long-term contracts.

Madrid electrician Alberto Naveiras, 36, and his girlfriend, Ester Mansilla, a 31-year-old cook, have bounced from one trabajo basura to another, interspersed with stretches of unemployment, since being laid off from long-term jobs in 2012. In mid-June, Mansilla landed her tenth temporary gig, helping a Madrid restaurant with its busy wedding season. Naveiras's latest contract, supervising maintenance at an apartment complex for 16 hours a week, started a few days later. "You can have experience and good education, but it's impossible to find fairly compensated full-time work," Mansilla said. Employers take advantage of temps by hiring, firing, and rehiring them on new short-term contracts, she added.

University-educated Spaniards haven't been spared. Víctor Laste, a 35-year-old veterinarian, wound up working as an exterminator in Madrid after he lost his job in 2010 and couldn't find work in his field. He recently started his own pest-control business. "We are much less assured of a secure future and therefore the development of a normal life," said Laste, a father of two.

Even a bad job, presumably, is better than no job, especially in a country where unemployment is at 22.7 percent, the highest rate in the euro zone after Greece. "Nobody is saying that by hiring somebody part-time for 500 euros, you're solving anybody's problems," said Javier Díaz-Giménez, an economics professor at the IESE Business School in Madrid. But “Spain needs 2.5 million jobs—good, bad, or average."

Still, Spain is locking in place a system in which some workers cling to long-term jobs with decent pay and generous protections, while everyone else gets  trabajo basura. The situation is bad not only for the temporary workers, but also for the Spanish economy—and it offers lessons worth pondering by other European countries as they struggle to kick-start growth and competitiveness.

One lesson is that boosting temporary employment can make a country less attractive to prospective employers. Research by economists in Spain and elsewhere shows that temporary workers are less productive than those on long-term contracts, in part because they rarely get on-the-job training. Such training could make a big difference in Spain, which has one of the highest dropout rates in Western Europe, with 45 percent of people 25 and over lacking a high school diploma.

Spain also lags its European neighbors in spending on research and development that could lure better-paying jobs in industries such as pharmaceuticals and information technology. Spain "never had a big program of research and innovation," said Irene Cortés, a critical-care doctor who left Madrid in 2012 to take a research job at the U.S. National Institutes of Health. But after the 2008 financial crisis, R&D spending was slashed even further. "Now, there's nothing," she said.

Another lesson is that labor reform can backfire if it doesn't go far enough. The reforms Spain enacted in 2012 limited the power of unions and reduced mandatory payments to laid-off workers, moves that were expected to curb wage growth and make it easier for employers to hire and fire. But pay cuts were borne almost entirely by temporary workers, whose average wages plunged some 20 percent while those of long-term employees barely budged. And while the cost of dismissing long-term workers has fallen, it's still well above the  European average, said Federico Steinberg, an analyst at the nonpartisan Real Instituto Elcano think tank in Madrid.  That leaves employers with a powerful incentive to put all new hires on short-term contracts.

The bottom line: Spain is "one of the least-friendly places, at least in the developed world, to create jobs," said Gayle Allard, an economics professor at IE Business School in Madrid. "Salaries are low because productivity is low, but productivity is low partly because of high temporary employment. It's just a vicious cycle."

Before it's here, it's on the Bloomberg Terminal. LEARN MORE