–Labor Market Reforms Urgently Needed
FRANKFURT (MNI) – The Spanish government must strictly implement
fiscal consolidation measures and stand ready to take further action if
needed, the OECD said in its Economic Survey on Spain released Monday.
The report also said that Spain must press ahead with efforts to
rebalance its economy and to reform labor market to bring down
unemployment. Environmental issues, notably the scarcity of water, must
also be addressed, the OECD said.
“Consolidation measures should be strictly implemented. As
announced, the government should stand ready to take further measures if
needed, as some measures will be quite challenging to implement over
time, the OECD asserted.
“It is important that a permanent improvement in the budget balance
is achieved,” the organization wrote. Spelling out fully the spending
cuts for 2012 and 2013 at an early stage might help restore confidence,
it added.
The OECD assessed that the Spanish government “is committed” to
putting public finances on a sustainable path and has already made some
substantial front-loading of fiscal consolidation.
Needed fiscal consolidation will weigh on the recovery in the short
term, putting an additional drag on growth, which is expected to remain
subdued due “to the necessary further adjustments in the housing sector
and a high degree of private indebtedness” as well as high unemployment,
the report projected.
The OECD lauded steps taken by Spain “to improve transparency of
the financial position of banks with the detailed release of the banks’
stress tests, as well as restructuring and reforms to strengthen the
resilience of the savings banks, which are particularly exposed to the
housing sector.”
“The banking sector as a whole has withstood the crisis well,
emerging from it with abundant capital and provision buffers, owing
notably to prudent financial supervision,” it said.
Nevertheless, while the government has made “significant steps to
address some of the long-standing shortcomings of labor market
institutions, decisive measures to strengthen the savings banks and
reforms to remove barriers to competition in product markets”, the OECD
warned “these efforts need to be broadened and deepened.”
The report devoted particular attention to necessary labor market
reforms in Spain, where unemployment has soared to around 20% during the
crisis and strong wage increases have undermined the country’s
competitiveness.
It called for an increase in statutory retirement age for a full
pension from 65 years of age to 67 years. Extended unemployment benefit
payments for older workers as well as subsidies to the partial
retirement scheme should be gradually shortened and eventually phased
out.
The report also said that duality in the labor market — offering a
few workers under permanent contracts exceptionally strong protection —
should be reduced. “This could for instance be achieved by introducing a
single contract with severance pay which is low initially, but gradually
increases with seniority, the OECD suggested. Restrictions on temporary
contracts, on the other hand, should be avoided.
The report also said that “it should be ensured that employers and
workers can freely agree to opt out from collective bargaining
agreements,” giving more leeway for wages to be decided at the firm
level. “Reforms along these lines would help to curb the widespread
indexation of collectively bargained wage increments to past inflation,
which is typically triggered when inflation exceeds 2%,” the report
said.
In addition, the employability of young and low-skilled workers
needs to be raised, the OECD said. “The institutional setting of
continuous training should be made less complicated and access of small
firms to subsidized continuous training should be improved,” it said.
The OECD called on Spain to improve the matching process between
potential employees and companies.
Following the burst of Spain’s housing bubble, the OECD said that
“the housing market remains characterized by large oversupply.” As a
large number of young adults live with their parents, policies fostering
the rented housing market can help absorb excess supply and ease labor
market adjustments, the report suggested. At the same time, government
subsidies for the construction of social housing should be reconsidered,
the OECD said.
More progress in already widespread reforms in product market
regulation can further boost competitiveness, both by strengthening
productivity and lowering prices helping the economy to restore
sustainable growth, the report argued.
“Scope for improvement remains,” the report said. “For example,
some regional governments are making use of their powers to restrict
entry of large-surface outlets. Besides, in professional services,
qualification-related entry barriers are higher than elsewhere in the
European Union.”
Turning to environmental issues, the OECD said that “the use of
economic instruments in water management needs to be extended.” In
particular, water prices “should better reflect total costs, including
the opportunity cost resulting from its scarcity and environmental
costs,” the OECD said.
— Frankfurt Bureau: +49 69 720 142; email: frankfurt@marketnews.com —
[TOPICS: M$X$$$,M$$CR$,MGX$$$,MI$$$$]
