The Spanish economy is shining amidst international uncertainty. It has received a triple upgrade in credit ratings from leading rating agencies – S&P, Fitch, and Moody’s – and has been praised by the Financial Times not only for standing out in a “disappointing” European landscape but also for being “one of the most robust in the developed world.” Key drivers of this growth include labor stability , a milestone that seemed unattainable just a few years ago but has materialized following the 2021 labor reform . Statistics back up this paradigm shift; the reduction in temporary employment is notable. However, this trend appears to be slowing down, and there are signs of stagnation. Analysts are suggesting that labor stability in Spain might have reached cruising speed, with temporary employment , akin to unemployment, hitting a sort of structural floor in an economy heavily reliant on the services sector and with significant involvement from the public sector.
Four years after the labor reform, the temporary employment rate has drastically dropped from over 26% in 2019 to around 15% today, a level that approaches—but still does not converge with—the European average of just over 12% . In light of this evolution, organizations like Fedea and BBVA Research have concluded that the decline in temporary hiring does not necessarily mean increased labor stability. Their quarterly reports highlight several warning signs. First, they emphasize that the progress isn’t due to a change in job composition but signifies a transformation in hiring practices, where traditional temporary contracts have been severely restricted, and the number of discontinuous permanent contracts has surged, misleadingly counted as indefinite despite their intermittent inactivity.
Furthermore, analysts point out the high levels of labor turnover . Over 3.4 million individuals aged 20 to 59 change their employment status each quarter in Spain. This finding has been noted by the Bank of Spain in its latest annual report for 2024, bringing attention to the persistent high turnover that exists in the labor market despite the greater stability promised by the new hiring framework. The institution concludes that while the 2021 reform has succeeded in lowering temporary hiring rates, it has not necessarily enhanced job stability. On the contrary, turnover—including the sum of new hires and departures registered with Social Security —has risen in both temporary and permanent contracts due to the higher utilization of discontinuous permanent contracts . Moreover, the combined transitions of employment to unemployment and vice versa each year affect 6.3% of workers in Spain, which is 2.3 points higher than in France and 4 points more than in Germany and Italy.
When asked directly about the impact of the 2021 measures on labor stability in Spain, Fedea associate researcher Florentino Felgueroso concludes that the reform is “still very young,” and the observed effects “are still minimal.” He emphasizes that a more thorough evaluation of the new hiring framework is necessary, especially during crisis situations. In the short term, he claims, “we aren’t seeing that people are working longer than before.” He argues that only “temporary jobs have been replaced by permanent ones to a limited extent, the periods of inactivity for those with discontinuous permanent contracts have increased, and we have redefined how employment termination occurs, with a significant rise in voluntary resignations and terminations during trial periods.” Felgueroso believes that the Spanish labor market has reached a floor in the stability of contractual relationships. “The temporary employment rate has stabilized and will remain so for the coming years,” he predicts. Whether it will converge with the European average remains uncertain, as does whether the decline is solely attributable to labor reform or also stems from a post-pandemic change in human resource management.
According to Raymond Torres , Director of Economic Outlook at Funcas , there indeed has been a noteworthy change coinciding with the reform, but it is also influenced by factors like economic growth post-pandemic and demographic shifts. “Companies aren’t downsizing employment as they used to and are now inclined to stabilize labor relations,” he states. Torres even speaks of a change in the mindset of employers, translating into what he considers “actual job creation” rather than mere statistical adjustments. Nevertheless, he concurs that there exists “a residual level of temporary employment tied to the structure of the productive fabric and the public sector, where reductions have been minimal compared to the private sector.” His outlook for the upcoming years suggests that the temporary employment rate will stagnate in a context of moderate economic growth, declaring, “A cruising speed has been attained concerning employment quality.”
From the government’s perspective, the Ministries of Labor and Social Security explain in their monthly evaluations that temporary employment rates are stabilizing following the significant initial reduction caused by the transition from temporary to categorically indefinite contracts in statistics. Nevertheless, the government has yet to conduct a thorough analysis on the impact of the 2021 reform . At the end of April, Deputy Prime Minister and Minister of Labor Yolanda Díaz announced the formation of a committee of experts to assess how the changes in hiring have affected temporary employment, a condition imposed by Brussels in exchange for the substantial recovery funds. Although the government committed to present the evaluation outcomes in January 2025, Díaz unilaterally extended the deadline by another year.
In the meantime, the Independent Authority for Fiscal Responsibility (AIReF) recently concluded that the latest labor market reforms have had “positive effects,” albeit of “moderate magnitude.” In one of the technical documents supporting the Opinion on the Long-Term Sustainability of Public Administrations, the watchdog points out that the policies “have improved overall placement and stability and have partially contributed to reduced segmentation, aligning with the fall in temporary employment and the increased presence of indefinite contracts.” Nonetheless, it warns that “the results should be interpreted cautiously, as they are average effects measured over a limited timeframe, conditioned by simultaneous shocks.” It asserts that “a reevaluation of these conclusions will be necessary as new data comes in to verify whether the observed effects consolidate or moderate over time.”
PUBLIC BURDEN
Pending more comprehensive analyses on the consequences of the labor reform for job quality, analysts unanimously point to the public sector as the major burden of temporary employment. In fact, if it weren’t for the outdated temporary employment rates within various public administration domains, Spain’s standing in European comparisons would be considerably improved, presenting a rate closer to 12% , near the EU average if calculated solely for the private sector. Meanwhile, the public sector remains stagnant above 28% , a figure that embarrasses the country in Brussels but which the government continues to neglect despite repeated admonitions from community authorities.
This summer, the European Commission froze over 620 million euros of the Recovery Plan funds allocated to Spain, primarily due to excessive labor temporariness in the public sector. To release that money, the government committed to adopting measures before the end of the year. The Ministry of Public Function is currently drafting a plan to limit temporary hiring practices, especially in Education, Health, and Justice , sectors where temporariness is exceedingly high, establish a new early warning system, and introduce a punitive framework to penalize non-compliant administrations. However, this plan has yet to be implemented. Meanwhile, the General Advocate of the Court of Justice of the European Union (CJEU) , Rimvydas Norkus , has issued an opinion stating that Spain lacks effective measures to adequately penalize the abuse of successive temporary contracts in the public sector.
Given the public administration’s resistance to decisively tackle temporariness, Spain seems destined to lead labor instability rates in the European context. The pathway towards convergence is long and may be obstructed if various governments continue to procrastinate on substantial contractual reform in the public sector, despite the private sector’s efforts. Recently, Andreu Cruañas , president of the Temporary Employment and Recruitment Agencies employers’ association, expressed this sentiment in an interview, underscoring the ETT’s role as a “safe haven for legal security” for companies recruiting workers amidst the new labor framework’s restrictions.
The reform initiated by the government at the end of 2021 appeared to directly challenge the core of temporary employment agencies’ operations by severely restricting temporary hiring options. Nevertheless, the sector adapted to the new landscape, as evidenced by positive growth figures from leading recruitment agencies in Spain. Top executives from firms like Adecco, Randstad, and Manpower have confirmed that although the labor reform posed significant challenges at implementation and stirred legal uncertainties, it has ultimately driven a comprehensive model shift in talent management, enabling these companies to leverage it effectively.
“The reform limited temporary hiring but allowed ETTs to contract under discontinuous permanent terms,” Cruañas recalls, asserting that these changes have boosted their operations, as “companies seek legal security and flexibility in the face of talent shortages.” As the sector’s leading representative, he asserts, “permanent roles should have indefinite contracts while temporary positions need flexible arrangements,” underscoring the need for such distinctions to enhance market stability.
This focus on transformation is also one of the main pursuits of the Labor and Social Security Inspection , which last year transitioned about 170,000 temporary and discontinuous permanent contracts into indefinite ones, a 23% increase from 2023. Initiated in 2018 , the Ministry’s control strategy has intensified over the years, yielding substantial results annually, according to official reports. The new Strategic Plan 2025-2027 continues to pursue the eradication of fraud in temporary hiring as a core priority. As reported by Yolanda Díaz during the September presentation, by summer, ITSS had converted 26,000 temporary contracts and 33,000 discontinuous permanent contracts into indefinite ones.