Spain adopts labour reform to fight record unemployment

Feb 10, 2012, 14:53 GMT

Madrid - The Spanish government on Friday adopted a reform to make the labour market more flexible in an attempt to trim record unemployment levels, Deputy Prime Minister Soraya Saenz de Santamaria announced.

Spain has an unemployment rate of nearly 23 per cent, the European Union's highest. In the below 25-years group, nearly every second person is out of work.

The reform will reduce the number of days of severance pay to 33 per year worked, down from 45 days. This was likely act as a hiring incentive as it would make the severance pay cheaper.

It also tries to discourage companies from keeping their employees on a succession of short-term work contracts, and creates a new type of indefinite contract establishing tax relief for small and medium-size companies hiring a jobless person who is below 30 years.

The reform tries to tackle the proliferation of temporary work contracts and 'the rigidity of the market,' said Labour Minister Fatima Banez. Economy Minister Luis de Guindos described it as 'extremely aggressive.'

But it also included some new rights for workers, such as that of a 20-day annual training paid by the employer, according to media reports.

The reform, which was adopted by decree, will enter into force on Saturday.

The previous Socialist government also reformed the labour market, but was unable to bring soaring unemployment under control.

Prime Minister Mariano Rajoy's conservative government, which took power in December, is trying to galvanize the stagnant economy and to trim the budget deficit, which is estimated at about 8 per cent.

The government has announced spending cuts and banking reform in an attempt to restore international confidence in Spain's solvency.