Spain embarks on labour reforms to create jobs

Chicago Chronicle Friday 10th February, 2012

MADRID - The Spanish government Friday approved a new decree to usher in labour market reforms to tackle an all time high unemployment of nearly 5.3 million.

The new regulation, the first major reform approved by Prime Minister Mariano Rajoy's government, aims to give more flexibility to labour in companies while reducing employers cost of retrenchment.

"It is an important and complete reform," Deputy Prime Minister and government spokesperson Soraya Saenz de Santamaria said at a news conference after the cabinet meeting. "It will mark a before-and-after in labour legislation in our country."

The fact that the trade unions and business leaders had failed to reach an accord on the reforms measures ahead of the government formalising the regulatory remains a cause of worry.

Santamaria explained that the reform aims to create a two-tier labour market that would create more temporary jobs for the young workers, while protecting the older generation of workers, who have to be given huge compensation if their jobs are axed.

The new regulation "encourages bargaining and open-ended contracts," aims to "give more flexibility" to labour in companies, reduces dismissal costs and "fights the black economy," Santamaria said.

An important clause of the new regulation is that employers will have to bear a lower cost of dismissing a worker under the open-ended contracts, reduced to 33 days per worked year and a total of 24 months. Currently a worker is entitled to 45 days wages per year of employment on being dismissed.

In effect, employers will find it easy to shed staff is faced with any economic problems.

Another major reform the new regulation will usher is the creation of a training fund, similar to the fund used by the welfare system, entitling workers to 20 hours of training paid for by the company.

This system is based on the German model of companies providing in-house training.

A new open-ended labour contract for small and medium-sized enterprises with fewer than 50 employees has also been created to help them deduct 3,000 euros from the wages of new employee below 30 years.

The new employee will be allowed to receive 25% of unemployment benefit next to his or her pay cheque, while the hiring company can deduct 50% of the costs made for the new employee during the first year.

Managers of state-controlled companies would have right to indemnity payments of 7 days per worked year up to 6 months.

Labour reform is seen as key to Spain's efforts to persuade European markets of its ability to cut budget deficit. It is also a means of creating jobs for the youth. Spain currently has one of the highest unemployment rate in Europe.

The measures are also aimed at retaining voter support. Promise of creating jobs and undertaking economic reforms was a key factor for Rajoy's People's Party coming to power.