Spain's Economic Storm Essay

876 WordsApr 10, 20134 Pages
PP5501 ECONOMICS APPLICATIONS IN PUBLIC SECTOR HORTENCE BAHO A0096215 Spain: Can the house resist the storm? INTRODUCTION Spain has experienced a serious economic recession, due to accumulation of subprime debts that led to a collapse in the construction industry, including the bankruptcy of major construction companies that initially contributed to 11% of GDP and 13% of employment in 2006, a period during which, the total factor productivity was negative across all sectors on yearly average with the exception of the banking sector. This was a signal of underperformance of all sectors which negatively affected the labour market. Along with this recession, the labour market was marked by inflexibilities and strict job regulations, high costs of dismissal and high unemployment benefits compared to other European Union (EU) Countries. My analysis will focus on the labour market inflexibilities in the management of labour contracts and how they have contributed Spain into a prolonged economic recession. I will conclude my paper by showing how these inflexibilities had a negative effect of reaching the highest record of unemployment in the EU region by 2012. 1. Labour contract management: Spain’s labour market has been regulated by inflexible legislation on job contracts, labour market mobility, wages and salaries, duration of work, dismissal on individual or collective basis. The lack of balance between short term and permanent contract regulations, and as a consequence, labour mobility increased within and outside firms, which affected highly productivity. Contract management and termination mechanisms at the national and organisational firms did not reflect flexibility and were not easily adjusted to respond to the economic recession. The regressive growth in labour market management affected the competitiveness of the Spanish economy. 2. High costs of

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