Thursday, June 17, 2010

Job Creation Is Impossible

The coat of arms of Spain is supported by colu...

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Derek Thompson

Nobody needs job creation more than the Iberian Peninsula. The pain in Spain falls mainly on the working class, as 20 percent unemployment -- the second highest in the EU -- looms behind the continent's third largest deficit. How do you create jobs while cutting spending? That's the Spanish conundrum. And for now, the answer appears to be: make it easier for employers to fire their workers. (Wait, what?)
Yes, Spain's labor market overhaul almost sounds counter-intuitive. If a fifth of the economy is out of work, why make it easier to put the other 80 percent out? AFP explains the logic:

Many economists blame the high jobless rate on the high cost of firing workers in Spain, which makes employers reluctant to hire staff and encourages the use of temporary contracts that have few benefits and rights.

Workers on full contracts are entitled to severance pay of as much as 45 days per year worked, one of the highest levels in Europe. Under the government reform this would be reduced to 33 days for some contracts.

In other words, if the Spanish government makes it cheaper to fire workers, employers will realize that it's cheaper to hire workers, since a worker's cost include the price of his dismissal. It's sort of like saying: if you make it less cumbersome to get divorced, more people will choose to get married.

Job Creation Is Impossible

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