Among the urgent structural reforms necessary to promote competitiveness—and, consequently, economic growth, quality job creation, and social well-being—is labor market reform. This has been identified as essential by European institutions within the framework of the Recovery Plan for Europe and must be implemented before the end of this year as a condition for receiving the Next Generation EU funds.

Government ministers send contradictory signals about the direction of this reform, often diverging based on their political party affiliation. This generates high levels of uncertainty among the public and, in particular, within the business community.

The Spanish labor market functions inefficiently, as evidenced by high unemployment levels—especially among young people—at twice the rate of neighboring countries, along with high temporary employment rates. The current regulation creates a stark duality, offering strong protections for those with permanent contracts while leaving temporary workers highly vulnerable, as they are always the first to bear the brunt of job adjustments.

Technological and demographic transformations will present both challenges and opportunities, reshaping how work is performed and organized while requiring significant retraining efforts. To mitigate risks and seize opportunities, the regulatory framework must be adapted to new economic and labor realities. This should be achieved through measures that balance increased flexibility—allowing companies to adjust their workforce according to market conditions—with greater mobility and job stability, enabling workers to remain in the labor market.

El Círculo de Empresarios proposes in this document a simplification of contract types, combined with a reduction in severance compensation, aiming to eliminate temporary employment instability and lower unemployment. While respecting workers’ acquired rights, the new severance compensation scheme—including the implementation of the Austrian backpack model—would align dismissal costs with those in more efficient labor markets that have lower unemployment and temporary employment rates.

Furthermore, this flexibility should be complemented by strengthening the role of collective bargaining, while maintaining the current prevalence of company-level agreements over sector-wide agreements.

Lastly, a collective effort to improve training and active labor policies is essential to facilitate the reskilling and redeployment of job seekers.

Implementing a strategy of this kind would give the labor market the dynamism needed to face current and future challenges while accelerating the creation of more stable, higher-quality jobs.