Permanent employment contracts in the recovery

One of the biggest drawbacks for Spain's labour market has been its dual nature.1 Between 2000 and 2007 the ratio of temporary to total employment contracts was 32.5% on average, a figure that is far from the 15% posted in the euro area. During the recession, job losses in Spain were particularly high among those on temporary contracts, thereby leading to a sharp fall in this temporary employment ratio although it was still clearly higher than Europe's figures. Now that employment contracts are on the rise again, it is a good time to assess whether this change in trend is consolidating.

To this end, we have analysed the share of permanent contracts among people who have been employed for less than one year in a company. As shown by the second graph, in general a slight upward trend can be observed. Worthy of note is the fact that the increase in the share of new permanent contracts out of the total new contracts is higher in those sectors that have seen a better trend over the last few years. This is encouraging in terms of the trend in temporary employment continuing in the short and medium term. Moreover, the slight upward trend observed in the share of new permanent contracts is particularly important if we take into account the Spanish economy's current point in the cycle. Given that the recovery is still very much in its infancy, it would not be unusual for the share of temporary contracts to grow as, in this phase of the cycle, decisions to hire new employees are usually taken with particular caution.

Another interesting fact is that the share of permanent contracts is usually higher among better qualified workers and it is precisely in this segment of the population where the rise in permanent contracts is greatest. This can be seen in the third graph, which focuses on those sectors with the highest growth in employment over the last few years. Consequently, higher qualifications are not only linked to a higher salary but also reflected in better employment conditions.

In short, the dual nature of the labour market has eased considerably over the last few years, partly for cyclical reasons, and perhaps also due to structural changes. However, Spain's labour market is still very far from the European standards. Although the trend of permanent contracts over the last year makes Spain's labour situation look more promising, it is vital to continue working to ensure new jobs are created on a solid basis.

1. The dual nature of labour is the division of the workforce into two segments: those in jobs with permanent contracts (more protected) and those with temporary contracts.