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  • October 2021 (Revised November 2022)
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The 2012 Spanish Labor Reform: Lifting All Boats, or Leveling Down?

By: Vincent Pons, Rafael Di Tella, Santiago Botella and Elena Corsi
  • Format:Print
  • | Language:English
  • | Pages:45
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Abstract

Since 1978, Spain had struggled to control unemployment. The country’s labor law was protective of employees hired long-term and companies used temporary contracts as buffers. In 2012, amid economic recession and a 23.6% unemployment rate, a center-right government of Mariano Rajoy passed a reform to liberalize the labor market. The authors of the labor reform argued that it helped to close the current account deficit and recover from the recession. Critics of the reform instead argued that it increased job precariousness and impoverished employees. Others believed that even more flexibility was necessary. In January 2021, Spain was governed by a coalition between the socialists and the extreme left-wing electoral alliance Unidas Podemos, led by the populist left wing party Podemos. Both the Prime Minister Pedro Sánchez, also the socialist party leader, and Pablo Iglesias Turrión, Second Deputy Prime Minister, Minister of Social Rights and the head of Podemos, had promised to repeal the labor law in the electoral campaign of 2019. But not all ministers in the cabinet shared the same view. In addition, the government was applying for funding from the EU to help the Spanish economy to recover from the recession that followed the COVID-19 pandemic. But to unlock the €140 billion in grants and loans from the EU COVID-19 fund, Sanchez had to present a convincing plan of structural reforms to boost the economy and address its structural problems. Would the EU Commission approve Spain’s recovery plan if the 2012 reform were to be repealed? What should Sánchez's government do?

Keywords

COVID-19 Pandemic; Labor Market; Unemployment; Recession; Globalized Markets and Industries; Government Legislation; International Relations; Working Conditions; Employment; Labor Unions; Contracts; Social Issues; Public Opinion; Governing Rules, Regulations, and Reforms; Spain; European Union

Citation

Pons, Vincent, Rafael Di Tella, Santiago Botella, and Elena Corsi. "The 2012 Spanish Labor Reform: Lifting All Boats, or Leveling Down?" Harvard Business School Case 722-008, October 2021. (Revised November 2022.)
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About The Authors

Vincent Pons

Business, Government and the International Economy
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Rafael M. Di Tella

Business, Government and the International Economy
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Related Work

    • December 2022
    • Faculty Research

    Spanish Labor Law: Lifting all Boats or Leveling Down?

    By: Vincent Pons
    • October 2021 (Revised November 2022)
    • Faculty Research

    The 2012 Spanish Labor Reform: Lifting All Boats, or Leveling Down?

    By: Vincent Pons, Rafael Di Tella, Santiago Botella and Elena Corsi
Related Work
  • Spanish Labor Law: Lifting all Boats or Leveling Down? By: Vincent Pons
  • The 2012 Spanish Labor Reform: Lifting All Boats, or Leveling Down? By: Vincent Pons, Rafael Di Tella, Santiago Botella and Elena Corsi
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