Structural reform

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Structural reform is the set of measures that modify the structure of an economy. That is, reforms that are carried out in the institutional and regulatory framework in which socioeconomic agents operate.

That is, measures that, through reforms, modify the institutional framework, as well as the regulatory one, in which the different socioeconomic agents that make up the territory (state, family and company) operate. Through structural reform, far-reaching changes are established.

The main objective of structural reform is to strengthen an economy. As well as, on the other hand, maximizing the potential of said economy, as well as the balance in growth.

Difference between structural reform and temporary reform

Structural reform and temporary reform are two concepts that tend to generate great confusion among society. However, when we look at their meaning, we can see how these concepts, despite being related, are not the same.

In the first place, a structural reform, as we mentioned earlier, tries to establish, so to speak, new rules of the game. In other words, it is a permanent reform, since the changes that are established modify the fabric of an economy, as well as the rules of action of the different socioeconomic agents that are part of an economy.

On the other hand, secondly, the conjunctural reform refers to a reform of a lesser magnitude. That is to say, a reform that is carried out in order to correct small deviations that, at the moment that it is desired to apply, may be altering the results of a certain objective. The temporary reform is the most common, as it usually presents less difficulty in its application.

Why is a structural reform applied?

There are many objectives for which to carry out a reform of this type. However, given the difficulty of carrying it out, structural reforms are usually applied for a series of very specific objectives.

Among the objectives pursued by this type of reform, it is worth highlighting:

  • Increase productivity.
  • Eliminate obstacles to the efficiency of the production of goods and services.
  • Increase investment.
  • Increase the level of employment.
  • Reduce the black economy.
  • Correct debt levels.

A structural reform can be made up of a group of specific, temporary reforms that try to improve certain aspects of the economy in the territory. The objective of any structural reform is for the economy to show solid growth, without imbalances that, in the future, could cause unpleasant situations for the country.

When should a structural reform be applied?

In economics, a structural reform should be applied when the economy to which it refers presents serious imbalances. In other words, we must apply a reform of this type when the economic situation in the country presents problems of magnitude, prolonged in the long term.

Among the possible reasons that lead to apply a structural reform we could highlight:

  • Great levels of inequality in the country.
  • Prolonged productivity stagnations.
  • A high unemployment rate sustained over time.
  • Great levels of black economy.
  • Great problems of public or private debt.
  • Imbalances of the population structure.
  • Long-term decreases in gross domestic product (GDP).

These are some of the reasons why an economy might have a need for structural reform. However, there are also many other reasons that, as we said, may require structural reform.

Example

Among the many examples that we could select to put a real case of structural reform, we have chosen a reform that Spain adopted in 2012 to correct its labor market. A reform promoted by the European Union, given the country's difficulty in creating employment, as well as its vulnerability to the crisis that threatened the world economy in 2008.

To do this, Europe imposed on Spain the relaxation of the policies established in the Spanish labor market. In other words, measures were promoted to make the labor market more flexible, so that jobs could be created in the country in a simpler way. For this, weighty reforms were adopted such as the structure of the types of hiring, creating new methods that allowed temporary hiring, in combination with the permanent one.

Thus, Spain was able to avoid further job destruction. In the same way that, in turn, it set the stage to boost job creation with growth levels relatively lower than previously required.

However, there are critics of this reform who argue that the labor market is more precarious, wages have worsened and the reform should be eliminated.

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