Wednesday, May 15, 2013

A single type of labor contract

Looks like there’s a voice of sanity coming from the EU, suggesting that Spain adopt a single type of work contract, instead of the 40 different types of labor contracts that we now have.

The main problem with different categories of contracts is that makes it very difficult for employers (especially small ones) to have a flexible workforce. In addition, the various fixed timeframes and rigid rules encourage employers to anti-social behavior, such as firing teachers before every summer break and hiring them back in fall. In many cases, it’s not so bad for the employee either since they get the money from the government to cover for their employers bad behavior.

There’s three big ideas in the new labor contract idea:

1) Progressive increase in the size of the required severance pay. The two year limit on temporary contracts has meant that many companies either cycle through workers every two years, or use external contracting company that acts as the employer.

2) Make employer social security contributions dependent on how often the employees end up on the dole. The US already has this, and it encourages companies to provide a stable work environment and everyone wins.

3) If you want unemployment benefits, you need to be making some effort at finding a job. Right now the incentives for finding a new (non black market) job are severely skewed, since most jobs are simply not competitive to receiving 400 a month for doing nothing.

I’d love to see the government end with the obsession of making easier to fire people and instead think about ways to make it easier to hire them.

No comments: