The proposed reduction of the workweek in Spain to 37.5 hours without a decrease in wages, championed by Yolanda Díaz, the Second Deputy Prime Minister, is under scrutiny.

This measure has secured approval from the Council of Ministers and is currently being debated in Congress, where its potential support remains uncertain.

The International Monetary Fund (IMF) issued a report on Spain, highlighting that previous experiences in other countries with similar labor reforms have shown ambiguous effects on unemployment and potential adverse impacts on productivity and post-reform wage growth.

The IMF cautioned that the combination of a reduced workweek with the recent increase in the national minimum wage of 4.4% could lead to real wage growth exceeding 10% for lower-income workers by 2025. They noted that the cumulative increase since Pedro Sánchez's government began in 2018 could reach 70%, raising concerns about the potential adverse effects on disadvantaged groups.

The IMF emphasized the importance of preserving collective bargaining in any reform, underscoring the need to accommodate sectoral differences and the determination of working hour distribution and overtime pay.

This view aligns with that of the Spanish employer association, CEOE, whose president, Antonio Garamendi, argues that work hour reductions should be negotiated rather than mandated through legislation.

In addition to the workweek reduction, the IMF has voiced significant reservations regarding another government objective to raise severance pay for unfair dismissals.

This measure has been under consideration by Díaz since she took office in 2020, but has faced delays due to the pandemic and subsequent crises.

The European Committee of Social Rights deemed Spain's unfair dismissal compensation system irregular and inadequate in 2024. In response, the government has proposed greater compensation based on individual circumstances.

However, the IMF warns that this reform could discourage companies from hiring disadvantaged workers, potentially exacerbating job insecurity.

The IMF suggested that rather than increasing the costs of dismissal, a better approach would be to introduce higher unemployment insurance contributions for employers with high turnover rates, implicating a form of penalty for companies that engage in unjustified dismissals.

Critically, the IMF noted that neither the proposed increase in severance pay nor the reduction in work hours addresses what it identifies as the primary challenges in the Spanish labor market: high structural unemployment alongside the significant number of job vacancies and the duality of the labor market.

While acknowledging a reduction in temporary contracts, the IMF remarked that any benefits from prior labor reforms may have already been fully realized.

It also called for improved data on fixed-discontinuous contracts, which have become increasingly common following regulatory changes.

To tackle structural unemployment, the IMF recommends incentivizing long-term unemployed individuals to re-enter the workforce, highlighting the employment incentive now included in unemployment benefits reform, which allows for some compatibility between work and benefits.

The IMF advocates for further exploration of this approach.