The labor reform that began in January 2022 is already reshaping the economy, nudging growth higher as it matures. A preliminary analysis from the Bank of Spain shows that converting temporary contracts into permanent ones and reducing temporary employment by 13.5 percentage points across 2022 boosted household consumption. Families started to allocate a larger share of their income to spending, while their savings rate fell in tandem, revealing a shift in consumer behavior tied to more stable work arrangements and greater confidence about the year ahead. The trend underscores how policy changes can ripple through everyday spending, even as the dust settles on employment structures.
Across households with an average permanent contract, the empirical findings from the Bank of Spain indicate a strong propensity to spend, with roughly 81% of disposable income directed toward consumption. In contrast, when a household relies on a temporary contract, about 72% of income tends to be used for current expenditures, with the remainder set aside as a cushion against potential unemployment. Historically, there has been a noticeable spike in spending—roughly 20%—in the quarters following a shift from temporary to permanent status, a pattern linked to the added security and expectations attached to fixed-term contracts. This dynamic helps explain how changes in contract type can influence near-term demand for goods and services. The underlying driver appears to be the increased sense of financial security that comes with a stable job, which in turn translates into broader consumer activity.
Taking into account the substantial decline in temporary employment during 2022, driven by the push toward full-time, part-time, or permanent arrangements, the Bank of Spain projects a continuation of higher consumer spending in the near term. The forecast suggests household income shares devoted to consumption could rise by roughly three to four tenths, with an incremental impact on the economy of around two thousand to three thousand million in additional spending for the year. This projection reflects how a job market that feels more secure tends to unlock greater household spending, even as households maintain a cautious stance about future shocks.
Angel Gavilan, the managing director of the Bank of Spain’s economics unit, emphasized that the study is not a formal assessment of the labor reform itself. Rather, it represents an early, tentative effort to gauge potential effects on the broader economy. He noted at a briefing accompanying new macroeconomic projections that a fuller understanding would require examining how reforms influence workers’ career trajectories, contract types, and human capital accumulation. In particular, factors such as job rotation, the types of roles that become available, and overall productivity could shape longtime outcomes beyond immediate consumption trends. This perspective highlights the nuanced balance between policy goals and real-world labor dynamics as the country continues to monitor the reform’s evolving impact.