The labour markets in Spain and Germany have similar traits that serve to disincentivise foreign investment. German policymakers have taken steps to address this, but their proposed solutions would not work if they were also taken forward in Spain.
Below, we look at the reforms the German government is pursuing and explain why the changes required in Spain should take a different form.
The German government recently agreed to adjust employees' rights, with the overarching aims of making Germany a more attractive country to set up and operate a business and promoting economic growth. The labour law reform is designed, among other things, to reduce bureaucracy and make the labour market more flexible. For employers, some of the main changes proposed concern the way employment relationships are established and terminated, as well as the handling of sickness-related absences.
If implemented, these changes should give the German economy a boost, considering the protective labour laws in favour of employees, which are unfavourable in an international environment for companies in Germany. Companies operating in Spain face strikingly similar hurdles. Termination protection, in particular, is widely regarded as a drag on investment, and a growing chorus of voices in Spain is asking whether scaling back employees’ rights might sharpen the country's competitive edge. This poses the question of whether Germany's playbook could work in Spain.
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