from inflation to record rate hikes and the banking crisis

This is what happened again in March. Against this background, various voices warned of a “slowdown”, even a “slowdown” of employment in the first quarter of the year. The PP, the employers, the companies themselves in the Bank of Spain surveys and various institutions in their analyses, such as Adecco, among others, expected a slower pulse in the labor market in this first phase of the year. But, once again, the labor market showed its best face: this March has been the best in the historical series, with 206,410 more workers on average, up to the maximum of 29.4 million people affiliated with Social Security.

“Job creation accelerates whichever way you look at it, both in annual terms and in seasonally adjusted monthly terms. Record first quarter, with levels even above those of 2021”, highlighted this Tuesday Ángel Talavera, chief economist for Europe at Oxford Economics.

The Ministry of Social Security has highlighted this last data, the record job creation in the first quarter of the year, of almost 300,000 jobs (291,477), in which they specify that it has gone from less to more. In other words, following the fortnightly evolution of the labor market, “a progressive acceleration of job creation in the quarter” is observed.

Economist Daniel Fuentes Castro points to the interannual evolution of employment as the best thermometer, which in March gained momentum from 2.4 to 2.7%, “confirming the acceleration that had been intuited in January and February,” he explained on his Twitter account. .

A “surprising” resistance and its reasons

The good employment data in March in almost all its facets – from the maximum number of workers, a new low in temporary employment and a sharp drop in unemployment – ​​have reaffirmed one of the new post-pandemic consensuses: an unknown strength of the Spanish labor market, which It has become one of the pillars of Spain’s greatest economic growth compared to the European environment.

A resistance that is usually accompanied by qualifications such as “surprising” or “extraordinary” because to date the labor market had been rather “hyper-reactive” to economic uncertainty, with rapid declines in employment and increases in unemployment as soon as the economic outlook faced some difficulty, the Secretary of State for Employment, Joaquín Pérez Rey, recalled this Tuesday from the Ministry of Labor. Instead, it is now functioning as a prop for the economy.

“It is very striking, really. This resistance in the labor market is attracting a lot of attention”, acknowledges Mª Jesús Fernández, senior economist at Funcas. The reasons that explain this relevant change are still being studied, Fernández points out, but there are already several elements that stand out because they have substantially modified the labor market since COVID.

One of the most prominent is the labor reform, which has finally managed to reduce temporary employment in Spain as had not happened in decades. This Tuesday, the Financial Times dedicated an article to the new labor legislation for putting a stop to this problem. Job insecurity “turned out not to be an economic doom that policy makers had to adjust to” in Spain, says analyst Sarah O’Connor. “It was just a problem they had to fix.”

The CCOO and UGT unions point to greater employment stability thanks to the labor reform as one of the bases of the greatest resistance in the labor market, something that the CEOE employers have also pointed out in recent months. Before, companies had a large pool of temporary workers, many with very short contracts, and in the face of doubts or economic uncertainty, they left the companies en masse until the outlook cleared up. Now, with more permanent contracts, these ups and downs are not so cheap for companies, say the unions. In the same sense, the second vice president and Minister of Labor, Yolanda Díaz, expressed herself: “The labor reform and the work of the Government are bearing fruit”, she highlighted this Tuesday.

On the other hand, the economist Mª Jesús Fernández warns that there may be many readings about the effects on employment of the new labor framework, which still require more time for analysis, she considers. For example, that the new law could discourage hiring, given the fear of companies of future more expensive job cuts in case of facing economic problems.

Faced with this, hiring and the push for employment remain strong. Something that Minister José Luis Escrivá has highlighted that he accounts for the “confidence” of the business sector in the progress of the economy. Also the good state of the accounts of the companies, which have greatly increased their margins and profits in the inflationary crisis, has highlighted the economist Eduardo Garzón.

Other relevant changes are “cultural” and have to do with the experience of the pandemic, the novelty of the ERTE lifeguard that has been legislated in a structural way also in the labor reform, the Secretary of State assessed in a recent interview in this medium. from Social Security, Borja Suárez. In the Ministry of Escrivá, the effect of the European Recovery Plan and the arrival of associated European funds are also highlighted, which they consider key to boosting employment in “high added value” sectors, such as telecommunications, research and development and other scientific activities.

The Funcas economist Mª Jesús Fernández points out other possible reasons, such as the growing demand for unmet labor in some sectors, which could cause some companies to “prefer to keep their workers, even if they have a drop in activity or a not very favorable context at this moment, because if they lose them it is difficult to recover them” later.

What awaits us from now on?

One of the unknowns of this new employment strength is how long it will last. If it is something more structural, as the coalition government considers, or not so much. The aforementioned Financial Times analysis highlighted that Spain still has “a fairly high proportion of temporary work and the reforms have not yet been tested in a recession”.

Minister José Luis Escrivá has predicted a “favorable” evolution of the labor market in the coming months. The analyst Mª Jesús Fernández believes that the employment forecasts of various entities, in her case of 0.5% for 2023, “it is very possible that they will improve because the economy in the first quarter is doing better than we thought”. The Government estimated an increase of 0.6%, which for the moment is premature to update, the Secretary of State for Employment, Joaquín Pérez Rey, responded on Tuesday.

The economy remains subject to great uncertainties and unions have warned against rate hike policies, which have continued despite the risk of the March banking crisis. The CCOO and UGT have warned against a measure that in past crises has drowned the economy of households and companies and that resulted in heavy job losses, which took many years to recover. The employers emphasize small businesses, especially commercial SMEs, which are shrinking. In the first two months of the year, “the closure of more than 13,000 companies” has taken place, says CEOE.

The majority unions of workers also remember that Spain has a pending challenge, another of its labor scourges, which has become entrenched in recent years: high unemployment. Although in decline, with the lowest level since 2008, Spain still has almost three million unemployed people who want to work but cannot find a job.

Therefore, CCOO and UGT have called on the Government to continue taking measures to reduce precariousness and facilitate the integration and protection of unemployed people. In addition, another derivative with companies is pending, the new attempt at a salary increase agreement at the state level, which can be a key tool for households to recover purchasing power and reinforce internal consumption, one of the pillars of the economy. .