Employment and Social Security


The labour market and employment policies

The reformist strategy adopted in 2012 is starting to reveal a clear change in trend in the Spanish labour market. Spain has gone from leading Europe in terms of job losses to becoming a fine example of success in terms of overcoming the 2007 economic and financial crisis. In spite of still limited growth in the Eurozone as a whole, Spain expects to create one million jobs between 2014 and 2015. This is something that would have been impossible to imagine at the end of 2011. Despite the long path still ahead, Spain has laid the foundations for creating a more dynamic labour market with better employment services - essential factors for competitiveness in the long term and the sustainability of the welfare state.

Like all other developed countries, Spain has had to tackle a process of far-reaching economic transformation, mainly due to economic globalisation and the rise of Information and Communication Technologies (ICT). Globalisation has prompted the emergence and development of new economic powers. This process is enabling millions of people to escape poverty but is also creating fierce competitive pressures in economies such as Spain. Moreover, the rise of ICT and other innovations is bringing about a transformation in the processes of production. Both these driving forces require businesses and workers to display an enormous capacity to adapt and survive in an increasingly demanding environment.

The Spanish labour market exhibited a range of traditional shortcomings that held back the employability of workers and affected the competitiveness of businesses.

To rectify the high rate of structural unemployment, the high volatility of unemployment levels and the profound duality of the labour market, recent governments have undertaken various reforms to encourage economic growth and produce rapid job creation. The changes made to the regulatory framework governing labour relations are intended to improve the way in which the Spanish labour market operates by applying the principle of flexicurity, so as to promote business competitiveness and worker employability.

State of the Labour Market

Since the transition to democracy, the Spanish labour market has retained a high rate of structural unemployment that is exacerbated by economic downturns such as the present one. The unemployment rate has never fallen below 8% during boom periods and has topped out at close on 26% during periods of economic crisis.

This high unemployment is compounded by excessive segmentation in the labour market between workers on permanent employment contracts and those on temporary contracts. This duality means that 40-50% of the employee population alternates between periods of unemployment and temporary jobs. This state of affairs mainly affects young people and less skilled workers. These are also the population segments hardest hit by the high unemployment rates suffered by Spain in times of economic crisis.

In recent years, the labour force has shifted enormously into the services sector. In 1982, 17.8% of all workers worked in agriculture; industry employed 26.92% of the workforce; construction employed 8.1%; and the services sector employed 47.4%. Today, three quarters (75.9%) work in the services sector; industry accounts for 13.61% of workers; construction for 5.8% of workers; and agriculture 4.7%.

The last economic crisis has again brought about severe adverse effects on the labour market. Of a working population of 22.6 million (59.4% rate of activity), almost one quarter (23.1%) are unemployed. The unemployment rate varies between 14.9% in Navarre and 34.2% in Andalusia, and is particularly high among the under-25s (51.8%). The construction sector is, by far, the one shrinking the most as a result of the crisis. In early 2007, 2,664,700 people (13% of the labour force) were employed in this sector. By late 2014, this figure had decreased to 1,030,400. In other words, over 1.5 million jobs had been shed in the sector, 60%.

Increased flexibility of the labour market and modernization of collective bargaining

With a view to tackling the job market situation, 2012 saw the adoption of the Common Law on Urgent Labour Market Reform (Ley 3/2012), which included amendments proposed by all groups represented in the Spanish Parliament.

This labour law reform reflects the wage moderation agreement reached by Spain's social actors and has attracted the backing of institutions such as the International Monetary Fund, the Organization for Economic Cooperation and Development, the Bank of Spain and the European Commission.

Informe de evaluación de la reforma laboral (Ministerio de Empleo y Seguridad Social)The reform introduces a series of measures designed to make economic growth translate quickly into job creation, and to transform the framework of labour relations in alignment with the needs of an increasingly complex and dynamic economic environment.

The reform introduces a flexicurity system to improve business competitiveness and worker employability as its chief aims.

As regards internal flexibility, the labour law reform measures are intended to encourage a reorganization of human resources and offer businesses a range of alternatives to layoffs when facing cyclical fluctuations. In a manner consistent with these measures, the reform also seeks to modernize and lend dynamism to collective bargaining so as to move on from the present confrontational pattern to a culture of cooperation among social and economic actors.

In addition, the reform brings the arena of negotiation closer to individual businesses, and introduces incentives so that higher-level industrywide agreements genuinely serve the needs of the present environment. The collective bargaining agreement reached at the level of the individual business is accordingly now made to prevail over higher-level agreements, and the parties are allowed to derogate from the current agreement on justified grounds.

Finally, the labour law reform ends the unlimited automatic extension of existing collective bargaining agreements: automatic extension is now limited to a one-year period. This avoids the indefinite survival of employment terms agreed under a document whose originally intended duration has come to an end, since those terms may no longer be suited to the present economic and organizational reality of the business. In addition, the parties are invited expressly to negotiate the collective bargaining agreement on an ongoing basis.

As to external flexibility, the reform is designed to discourage the tendency to treat all dismissals as unfair by clarifying the grounds of dismissal and eliminating the practice of despido exprés ("express dismissal"). Indemnification for unfair dismissal is brought closer to the levels prevailing in other European countries by establishing a statutory benchmark indemnity of 33 days' pay per year of length of service, capped at an amount equal to 24 monthly pay packets. The previous system was failing to assure employment stability, and retained elements - such as government authorization for collective bargaining agreements - that needed to be superseded.

The reform contains numerous measures to improve employability, with a special focus on small and medium enterprises and young people. First, a new contract mode is created specifically designed for smaller businesses and entrepreneurs, the "permanent contract in support of entrepreneurs", which attracts major tax rebates and incentives for hiring young people and long-term unemployed people aged over 45. These benefits apply only to entrepreneurs creating stable employment. Extending probation periods to one year also encourages stable employment, particularly at times like the present, where uncertainty is high and may slow down the rate of hiring.

In addition, improvements are made to "training and learning" contracts, which are key to facilitate the transition from training to employment and offer opportunities to young people who dropped out of training prematurely, drawn by the high earnings available in the tourist and construction industries during the boom.

(Ministerio de la Presidencia y para las Administraciones Territoriales)The new measures introduce workers' right to continuing training and requires that providers of training for employment be selected through competitive processes.

This new framework of industrial relations has been complemented during 2013 by a series of measures to encourage stable hiring by promoting part-time work and simplifying contracting models.

The Youth Employment Entrepreneurship Strategy 2013-2016 is an initiative of the government and social partners that proposes 100 measures to improve the employability of young people, facilitate their access to the labour market and foster entrepreneurship. By late 2013, it had offered more than 115,000 opportunities to young people.

In the coming years, these measures to foster youth employment will be joined by those of the plan for the Youth Guarantee Implementation in Spain, which seeks to ensure that all under-25s will have access to a good range of jobs, lifelong learning or work experience within four months of completing their formal education or becoming unemployed. To this end, the European Council has approved a fund of €6 billion earmarked for providing opportunities for young Europeans.

The challenges now faced by Spain include upgrading active employment policies to increase their efficiency, with a special focus on training policies. This upgrade must be achieved on the basis of transparency, oversight and competition in the delivery of services. Moreover, efforts are being made to address the serious problem of youth unemployment and to enhance planning and coordination among the various government authorities as regards employment policies.

Labour Market Improvement

In 2014, jobs were created in Spain for the first time since the start of the crisis. According to the Labour Force Survey (Spanish acronym: EPA), 433,000 jobs were created and the unemployment rate fell by two points. Employment is rising at a pace of 2.5% per year, while unemployment is falling at 8% per year.

This improved employment situation has been boosted by greater use of internal flexibility mechanisms as an alternative to dismissals. Wage moderation has saved jobs and bolstered the competitiveness of Spanish companies. Meanwhile, the modernisation of collective bargaining has led to agreement shelving, pacts on redundancy measures and a more dynamic system of collective bargaining.

Active Employment Policies

The active employment policies are set out in the 2014 Annual Employment Policy Plan (Spanish acronym: PAPE) and the 2014-2016 Spanish Activation Strategy for Employment, which contain the actions and measures for active employment policies, and cover actions and measures aimed at career guidance, vocational training for employment, hiring incentives, the promotion of equal opportunities in access to employment and support for entrepreneurship. These policies are developed and implemented by the regional governments and, within the scope of its competence, the State Public Employment Service. They are funded through State funds, the European Social Fund and regional government resources.

Social Stakeholders and the Economic and Social Council

The Spanish Constitution confers a key role on trade unions and business organizations for the advocacy and promotion of the economic and social interests they respectively represent, as set out in its Article 7.

The main social actors in Spain are, on the side of business, the Spanish Confederation of Business Organizations* (CEOE) and the Spanish Confederation of Small and Medium Enterprises* (CEPYME), and, on the side of workers, the Union Confederation of Worker Committees (CCOO) and the General Union of Workers (UGT). In early 2012, there was signed the Second Agreement for Employment and Collective Bargaining 2012-2014, containing key terms on wage moderation and internal flexibility.

Reunión del presidente del Gobierno y la ministra de Empleo con agentes sociales (Ministerio de Presidencia y para las Administraciones Territoriales)The Economic and Social Council is a high-level government advisory body concerned with socio-economic policies. It is also a place of understanding for the social and economic agents whose purpose is to implement the social and democratic rule of law. It comprises a Chair and sixty members: twenty members appointed by trade unions, twenty more appointed by business organisations and twenty more from associations and organisations. It is a public-law entity having its own legal personality, full capacity to act, and organizational and functional autonomy for the performance of its purposes; it is attached to the Ministry of Employment and Social Security.

In 2014, the Government of Spain and social stakeholders signed various agreements aimed at promoting reforms within the framework of social dialogue. It is particularly worth highlighting the implementation of an Extraordinary Activation Programme for the Unemployed targeting the Long-term Unemployed, which was agreed upon between the Government of Spain and social stakeholders.

Social security and the social protection model

Social Security is among the institutions that stand highest in public esteem. The protection it affords, based on a constant search for an efficient and modernized management model, is the outcome of a collective effort first undertaken in 1883.

Article 41 of the Spanish Constitution of 1978 provides that "public powers shall maintain a public regime of Social Security for all citizens such as to assure sufficient assistance and social benefits in the face of hardship, particularly in the event of unemployment," and further establishes that "supplemental assistance and benefits must be free".

The renewal of the guiding principles of the Spanish social protection model led to the enactment of Royal Decree Law 36/1978, of 16 November 1978, on institutional management of Social Security, health and employment, which, under the terms of the Pacts of Moncloa, created a system of institutional participation involving social actors and specified a new management system to be implemented by the following bodies:

  • The National Institute of Social Security (Instituto Nacional de la Seguridad Social) to manage the economic benefits within the system.
  • The National Institute of Health (Instituto Nacional de Salud) for health care benefits (this body was later renamed the National Institute of Health Care Management, Instituto Nacional de Gestión Sanitaria).
  • National Institute of Social Services (Instituto Nacional de Servicios Sociales) (this entity was later renamed the Institute for the Elderly and Social Services, Instituto de Mayores y Servicios Sociales).
  • The Social Institute of the Navy (Instituto Social de la Marina), for management concerning maritime workers.
  • The General Treasury of Social Security (Tesorería General de la Seguridad Social), as the single cash management entity of the system, operating under the principle of financial solidarity.

In the 1980s, benefits were extended to new population groups and the system was endowed with improved financial stability. This stability requires that certain basic rules be abided by, such as the gradual matching of contribution bases to real wages, a commitment to increase the value of pensions in step with the ability of the system to do so, proportionality of contributions made to benefits received, and a commitment not to burden the system with the funding of policies unrelated to its purposes. For many years, workers' and businesses' contributions had funded non-contributory benefits that ought properly to have been sustained by general taxation. This anomaly was ended in 2013, when the process of the separation of funding sources was brought to completion. All these factors now form part of the backbone of the system.

The contributory pensions of the system, obtained through previous contributions and funded by contributions from employers and workers, are currently as follows:

  • Retirement, permanent incapacity, widowhood, orphanhood and family pensions.
  • Temporary incapacity.
  • Other benefits for birth and early childhood care: maternity, paternity, risk during pregnancy, risk during breastfeeding, care of children with cancer or other serious illnesses.

Pensionistas (Ministerio de Empleo y Seguridad Social)The protective action of the system is rounded off by a series of non-contributory universal benefits for individuals who are not entitled to the former benefits and who lack financial means. These are funded entirely by State contributions.

At the end of 2014, the Spanish Social Security system was paying around 9,300,000 contributory pensions, over 5,600,000 of which were retirement pensions. The average pension from the system amounts to 876.56 euros per month. This amount has trebled in just over 20 years, given that the average pension in 1990 was the equivalent of 267.23 euros (228.01%).

The system guarantees a minimum level to all pensioners - based on their personal and family circumstances - if the pension to which they are entitled does not reach the minimum amount set each year. These minimum non-contributory pensions have also grown significantly in recent years. For example: the minimum pension for a retiree with a dependent spouse has increased from 195.69 euros/month in 1986 to 780.90 euros/month in 2014; while the widowhood pension for over-65s, which stood at 136.43 euros/month in 1986 had risen to 632.90 euros/month by 2014.

At the end of 2013, Spanish Social Security was paying around 9,150,000 contributory pensions, more than five and a half million of which were for retirement. The system's average pension comes to €862 per month. This amount has trebled in just over twenty years, given that the average pension in 1990 was the equivalent of €267.23.

The system guarantees a minimum level to all pensioners based on their personal and family circumstances if the pension to which they are entitled does not reach the minimum amount set each year. These minimum non-contributory pensions have also multiplied their amount in recent years. For example, the minimum pension for a retiree with a dependent spouse has increased from €195.69/month in 1986 to €778.90 in 2013. The widowhood pension for over-65s was €136.43/month in 1986; it had reached €631.30 by 2013.

In 2013, the system was reformed to adapt it to demographic changes, bolster the equity of the system and ensure that pensions are adequate and that the system is sustainable. Although comprehensive in nature, the most significant changes brought in by this reform affect the retirement system, given that retirement pensions represent the majority in the system (60% of all contributory pensions).

The requirements for retirement access are now as follows:

  • To have completed a minimum contribution period of 15 years.
  • To have reached the age of 67, or 65 if the worker has paid contributions during 38 years and 6 months. There is a transitional period until 2027.

Nonetheless, workers can retire early in the following events:

  • With a pension amount reduced by the time required to reach worker retirement age: early involuntary retirement (up to four years before the legal retirement age) or voluntary early retirement (up to two years before the legal age).

  • Certain professional groups or activities and disabled workers can retire without a reduction in the pension amount.

With a view to promoting the employment of older workers and fostering active ageing, a number of formulas allow for the payment of a retirement pension while carrying out professional activities. These include partial or flexible retirement and the new active retirement formula that allows for a combination of work and 50% of the retirement pension.

In 2013, pensions below €14,000 per year were adjusted upwards by 2% whereas the remainder were adjusted by 1%. This year, all pensions were increased above the CPI (Consumer Price Index), which is expected to be 0.2%. This increase was nine times the CPI for over 75% of pensioners and four times for the rest.

The Social Security Reserve Fund

In order to meet pension payments and ensure the sustainability of the system, the Social Security Reserve Fund was set up in 1997 to protect the system from difficulties. The Fund, which originated in the terms agreed under the Pact of Toledo of 1995, receives its contributions from surplus contributory receipts resulting from the settlement of Social Security budgetary items which, in accordance with prevailing laws and regulations, must be allocated primarily to the Fund.

In 2012 and up to 20 December 2013, the Social Security system has had to use €18,651 million from the Reserve Fund, plus an addition €4,980 million from the Mutual Society Prevention and Rehabilitation Fund. In other words, a total of €23,631 million have been necessary over two years. The current volume of the Reserve Fund stands at €53,744 million.

System Challenges and Sustainability Measures

The challenges for the future of the pension system are rooted in demographic tensions that will occur in the medium to long term: the population of over-65s will increase from 18% today to 36% in 2050. This, combined with the effects of the economic crisis that hit in 2008, has forced Spain to resort to use of the Reserve Fund and other funds of the system. All of the above dictates the need to introduce new elements into our pension system, as is the case in the majority of EU countries. These elements are the Sustainability Factor and the Pension Revaluation Rate.

The legislation introducing the Sustainability Factor and Pension Revaluation Rate was approved on 19 December 2013. The Sustainability Factor relates the pension amount with the trend in life expectancy and will apply to pensions as of 2019. The Pension Revaluation Rate enters into force in 2014 and fixes a rate for the revaluation of pensions subject to the revenue and expenditure of the system over 11-year periods. In all events, pensions will increase at least by 0.25% and at most by the CPI plus 0.5%.

Thanks to pension increases in 2013 and 2014, the purchasing power of Spanish pensioners has increased by 2.08 billion euros.

Unemployment Protection

Unemployment benefit and mechanisms for protection of the unemployed

Together with active employment policies, protective action for unemployment includes passive policies covering various levels, which are public and mandatory.

Contributory level

Contributory protection is referred to as "unemployment benefit" and is applicable to workers who have involuntarily lost their jobs and who have contributed to Social Security for a given period. This entitles them to receive a financial benefit for a time whose length will depend on the accumulated contribution periods and whose amount varies according to the basis of the unemployment contributions made. With certain exceptions, while this benefit is being paid, the State Public Service for Employment (SEPE) pays the employer part of Social Security contributions.

Trabajadores (Ministerio de Empleo y Seguridad Social)The requirements to qualify for contributory unemployment benefit are:

• To be affiliated with the system or to have undergone registration or similar.

• To be officially unemployed (which, rather than a requirement, is the basic circumstance for protection) and provide proof of one's availability to actively seek employment and accept adequate job placement by signing a commitment to activity.

• To have completed a minimum contribution period of three hundred and sixty days in the six years prior to the official unemployment situation or when the obligation to contribute was no longer applicable.

• To have not reached the ordinary age required for entitlement to a contributory pension, except in certain cases.

• To sign on and remain registered as a jobseeker.

The duration of the benefit is based on the contribution periods while employed in the six years prior to official unemployment or when the obligation to contribute was no longer applicable, up to a maximum of 720 days for workers who have contributed more than 2,160 days.

The amount payable varies according to the regulatory basis of unemployment benefit applicable to the worker and is subject to minimums and maximums depending on whether the worker has dependent children and their number. In general terms, the amount received during the first 180 days is 70% of the basis; then, from day 181, it is reduced to 50% of the basis.

Welfare level

The welfare level includes allowances for unemployed workers without access to contributory benefits (whether because these have run out or because they have not contributed long enough to be entitled to them). Since its purpose is to guarantee minimum resources to unemployed persons, its duration is based on factors such as age and family obligations, rather than on previous contributions. Besides payment of the benefit, while unemployed workers receive the allowance for over-55s, the SEPE makes retirement contributions to Social Security. The SEPE also pays these contributions when permanent seasonal workers over the above age receive an unemployment allowance and, in some cases, when they are below this age.

The duration and amount vary according to the formula of allowance to which they are entitled, which may be:

  • Allowance for workers who, at the time of official unemployment, have not completed the minimum contribution period for access to contributory benefits.
  • Allowance for workers whose unemployment benefit has run out.
  • Allowance for migrant Spanish workers returning from countries outside the European Economic Area or with which there is no Unemployment Protection Agreement, who have worked for at least twelve months in the past six years in those countries since their last departure from Spain and who are not entitled to unemployment benefit.
  • Allowance for individuals released from prison without unemployment benefit entitlement, provided that they have been imprisoned for more than six months.
  • Allowance for workers qualified as fully capable or partially incapacitated following a review due to improvement in a situation of major invalidity or permanent incapacity for their usual occupation.
  • Unemployment allowance for the over-55s.

Other levels of social protection for unemployed persons

The Spanish system of protection for unemployed workers also includes a number of welfare incomes for specific groups. These include:

  • Unemployment protection for temporary agricultural workers.
  • Active insertion income for specific groups: long-term unemployed, people with disabilities, victims of violence or returnees from abroad.
  • Prepara Programme. Workers whose unemployment benefit or allowance has run out and who are not entitled to any other benefit or to Active Insertion Income, can apply for the Prepara programme, which is a retraining scheme accompanied by a 6-month allowance.
  • Extraordinary Activation Plan, targeting the long-term unemployed with family responsibilities who are no longer entitled to any other benefits. Agreed with the regional governments and social stakeholders, it places special emphasis on the personalised treatment of the beneficiary, with whom steps are taken to implement a labour re-insertion plan managed via the employment services.
  • Moreover, regardless of whether or not they are in active employment, citizens are covered by the non-contributory income support available in the different autonomous communities.

The Impact of Immigration on the Social Security System

During the years of economic boom, the dynamism of Spanish society began to attract foreign workers. In 1981, there were only 198,042 foreign nationals in Spain (0.52% of the total population). By 1996, this figure had increased to 522,314 (1.37%); the number of foreign nationals stood at 3,034,326 (7.02%) by 2004, and in 2008 had reached a total of 5,220,600 (11.3%).

In 2014, the number of foreign citizens in the Spanish Social Security system stood at 4,943,627 (10.6% of the total population), of which 2,691,177 are from non-EU countries and 2,252,450 are EU citizens and their relatives.

Trabajadores realizando faenas agrícolas (Ministerio de Empleo y Seguridad Social)The economic downturn has particularly affected migrant workers in Spain, primarily because of their increased exposure to the sectors hardest hit by the economic crisis, such as construction.

The current state of affairs is illustrated by the data on migrant affiliations to the Social Security system: in 2008, 1,938,632 foreign citizens (EU and non- EU) were affiliated; by the end of 2014, this figure had fallen to 1,552,639.

In December 2014, there were 1,552,639 foreign citizens affiliated to the Spanish Social Security system. The number of registered EU citizens stood at 927,282, while the number of registered EU citizens stood at 625,357.

By activity sector, the distribution of Social Security affiliations paints a picture of the kinds of jobs that tend to be taken by foreign citizens, which continue to be a strong economic driver in the production system. Based on rough figures, the main sectors are: the hospitality industry (250,000); trade, repair of motor vehicles and bicycles (240,000); administrative activities and ancillary services (110,000); construction (100,000); and the manufacturing industry (100,000). All these foreign citizens are registered under the General Regime or the Special Regime for Self-Employed Workers. In addition, 200,000 foreign citizens are registered under the Special System for Agricultural Workers and 210,000 under the Special System for Domestic Workers.

Despite efforts to achieve fiscal consolidation, integration policies - which extend to projects for social cohesion - have been maintained. Of these, programmes for the initial reception of migrants in Spain - as Europe's southern border - are of critical importance.

Given the current situation, the Government of Spain has given priority to voluntary return policies for those foreign citizens who have lost their jobs and wish to return to their respective countries of origin within the framework of mutual cooperation and reintegration programmes.