Last week Spanish Prime Minister Mariano Rajoy proposed his fourth round of spending cuts and tax hikes since taking office in December. He is following the IMF-Brussels orthodoxy, but he'd do better if he reversed the labor policies that have led to a 24% jobless rate.
Consider a few examples:
• After Cyprus, Spain ties with Malta for the most public holidays (14) in Europe. The Spanish Workers' Statute also guarantees 22 days of paid vacation annually, 15 days to get married and two to four days when anyone in an employee's family has a wedding, birth, hospitalization or death.
Mr. Rajoy has tried, with only moderate success, to tweak the public-holiday schedule and discourage "bridge" weeks—when, say, the Assumption of Mary falls on Wednesday and your entire staff takes off Thursday and Friday too. But if Mr. Rajoy wants a reform that would also be popular, why not ditch the statute's clause that bars employees from trading vacation time for extra pay? If Spaniards could earn greater rewards for taking fewer holidays, they might eventually want to scrap state-mandated vacations.
• Sick employees can get most or all of their wages for 18 consecutive months if they have a doctor's note. An employer could opt to fire chronically ill employees—and pay up to 24 months of guaranteed severance. That's excessive. Then again, the mandatory national insurance to cover sick wages, severance pay, health care and so forth takes 39.9% from the gross average Spanish wage.
Mr. Rajoy has trimmed unemployment benefits and pledged to reduce compulsory "social contributions" by one percentage point next year and another in 2014. He could do much better by letting Spaniards opt out of some entitlements entirely, such as paternity pay or child-care coverage. Spain would be a far better place to work and hire if its laborers and businesses could choose how to spend more of what they earn.
• Spain's 52% youth unemployment remains the subject of countless government training programs and tax exemptions for businesses hiring those under age 30. The programs don't work but they are expensive.
A free alternative: Repeal the Workers' Statute clauses that forbid most trainees and apprentices from earning less than 60% of the wages of full employees and from working more than 85% of a regular shift. It's harder to hire young people if you know you'll get much less work out of them for not much less pay.
Mr. Rajoy could also expand the one-year period during which businesses may dismiss new employees without severance. This only applies to firms with fewer than 50 workers, which helps explain why 99% of Spanish companies have no more than 49 employees of any age.
• Once a Spanish business reaches 50 employees, its workers must also elect five workplace reps to bargain on wages and conditions. These delegates must each receive at least 15 paid hours off monthly for their duties, and the quotas rise as companies grow. By the time a business hires its 751st staffer, it must have at least 21 workplace reps, each getting a minimum of 40 paid hours off per month.
Eliminating these costly sops and letting workers negotiate individually would no doubt provoke a declaration of war from labor bosses. So what? Fewer than 16% of Spaniards today opt to unionize, and far fewer than that join in already-frequent union demonstrations.
• Spain taxes corporate profits up to €300,000 at a 20% rate for companies with 25 or fewer workers. The rate goes to 25% once profits exceed €300,000 or headcount hits 26, whichever comes first. Companies with profits of more than €300,000 and more than 25 workers are taxed at 30%. Deductions are available for businesses that invest in the "cultural interest," operate in Spain's North African territories, hire women, etc.
A flat rate, closer to 20% than 30%, would expand Spain's tax base by eliminating the marginal tax on 26th hires. If Madrid closed its loopholes, it could increase revenues considerably by making avoidance, evasion and fraud more trouble than they're worth.
We could go on. The Spanish labor market has been protected, regulated, mandated and taxed nearly to death. Mr. Rajoy won the election by hammering "unbearable and unacceptable" unemployment—which was lower than it is now. But after eight months and timid reforms, the Prime Minister says he sees nothing more his government can do to get Spain working. If that's true, he might as well nominate himself for unemployment.