Spain's Recovery and Resilience Plan: Addressing Structural Challenges in the Labour Market

Spain's labour market has long combined structural unemployment well above the EU average with exceptionally high temporary employment, weak activation policies and persistent skills mismatches. Spain's Recovery and Resilience Plan, initiated in 2021, sought to address these accumulated weaknesses through a comprehensive package of regulatory reforms and flanking measures across four interconnected pillars: i) reducing the excessive use of temporary contracts, ii) rebalancing firms' capacity to manage cyclical and structural shocks, iii) modernising the collective bargaining framework and iv) strengthening labour rights and reforming active labour market policies, public employment services and vocational education and training. These reforms were implemented against a backdrop of strong macroeconomic momentum, with Spain's employment and GDP growth consistently outpacing the euro area average between 2021 and 2025. While this favourable context partly reflects global post-pandemic dynamics, Spain's labour market performance over this period was notably stronger than the EU average, with employment growing at more than twice the EU rate. This paper examines the design of the reform package, contrasts it with previous attempts at reforming the labour market and discusses evidence on its effects. Evidence to date demonstrates significant positive effects on contractual outcomes: since early 2022, the temporary employment rate has fallen by over 10 percentage points, new hiring has reoriented decisively towards open-ended contracts, and Spain has substantially closed a gap with the EU average that had persisted for decades. Evidence on the remaining aspects is more tentative and largely institutional in nature, reflecting in part the limited scope of activations of the new internal flexibility mechanism to date and the longer time horizons over which collective bargaining, activation and skills-related reforms produce observable labour market effects.