Tuesday, November 26, 2013
Resisting reforms that harm no-one
I have attended some policy debates recently on the duality of the Spanish labour market (the fact that we have a record level of temporary contracts). A few years ago, a group of economists proposed a very simple reform: to replace all contract options by basically one single fixed contract that increases the firing costs over time, leaving temporary contracts for season contracts in product markets where work is really seasonal. Since current workers with fixed contracts would keep their current contracts it is hard to understand why trade unions have so fiercely resisted such reform. Samuel Bowles, in his chapter on bargaining in his “Microeconomics” book (page 201), argues that “getting to the bargaining frontier may require new institutions or precedents, that with some probability will later be deployed to the disadvantage of one of the bargainers”. If this can be applied to labour reform in Spain, perhaps organized workers do not fear the new contract per se but fear that it will open the door somehow to them losing bargaining power. Assuring them that it will not be so is perhaps the key to a successful reform. This requires expanding the political economy traditional framework (social groups defending their interests about the particular policy at stake) to take a more comprehensive view. Acemoglu and Robinson have a recent paper on policy advise where they also claim that advisers should take into account the effect of reforms on the political power of affected groups. Perhaps in these cases it would be better to propose the reform together with a broader package that makes it more acceptable to workers, and that includes tax issues, training possibilities or participation in firm management.