Madrid’s labour market reforms are unlikely to contribute to improved economic performance, despite recent claims
…it is naive to think labour market reforms will lead to growth, or even to falling unemployment – except, perhaps, in a very narrow margin. Aggregate unemployment falls, all other things being equal, when economic growth outstrips productivity growth. And with productivity rising fast (possibly, or probably, as a result of the crisis, which may have weeded out the very weak companies, thus pushing up average productivity), and growth limping behind, that is not going to happen soon.
Labour market reforms of this sort do not do much more than redistribute the (possibly fewer) available jobs. For every job in the “competitive” Spanish car industry, read one job gone in the French, Italian, Belgian, Swedish or German car industry. Beggar-thy-neighbour policies of this kind never increase the number of jobs, as Keynes pointed out more than 75 years ago. We should not fall into that trap again.
A liberalised labour market also brings economic growth – you can’t grow a business if the government punishes you for starting one up, punishes you for recruiting people, punishes you if you have to lay them off and punishes you if you still somehow manage to make a profit!
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