THIS was the news the government had been waiting for. “Spain’s labor market has made a 180-degree turn,” crowed the prime minister, Mariano Rajoy, as the country announced the first annual rise in employment in six years. The numbers show that unpopular reforms to the malfunctioning labor market are starting to work. But there is plenty left to do.In the past year Spain has created 190,000 jobs. The unemployment rate, still one of the highest in the euro zone, fell from 26% to 24.5% (see chart), and the labor force stopped shrinking after six straight quarters of decline.
The labor reform in 2012 gave companies more flexibility to set wages and working conditions themselves rather than through sector-wide bargaining, and cut severance payments for unfair dismissals. Those changes, buttressed by a deal between unions and employers, tempered wage growth that had far outstripped gains in productivity. How much credit do they deserve for…
