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Spanish government approves sweeping labor reforms

February 10, 2012 | 11:01 am
The Spanish government, headed by Prime Minister Mariano Rajoy, approved sweeping labor reforms that it says are necessary to get the flagging economy back on track

REPORTING FROM MADRID -- Spain's new conservative government announced drastic changes to the country's labor system Friday, in some cases altering contract terms that have been untouched for 50 years, in a bid to bring down Europe's worst unemployment rate.

Under the new labor rules, companies doing business in Spain will be able to hire and fire workers more freely, negotiate pay independent of national contract mandates and score tax breaks for hiring people under the age of 30. Severance packages long deemed among the most generous in Europe will be cut by more than a quarter, from 45 days' pay for every year on the job to 33. Temporary workers -- a full third of the Spanish workforce -- will be entitled to permanent status, with better pay and benefits, after two years rather than the current three.

The Cabinet approved the measures by decree Friday, meaning they will go to lawmakers for a yes-or-no vote without the option of amendments. The ruling Popular Party holds a commanding majority in parliament, which likely will ensure quick passage.

Spain has Europe's highest jobless rate. Nearly one in four workers is unemployed; the figure tops 50% for people in their early 20s.

"The reform will provide the framework to allow the creation of stable employment as soon as possible," Labor Minister Fatima Banez told reporters after the Cabinet meeting.

But many economists and even Prime Minister Mariano Rajoy acknowledge that unemployment may first jump up in the short term. For example, companies, before they begin hiring new people, may first take advantage of the smaller severance packages to lay off workers who were previously too expensive to let go. 

"Unfortunately the figures will not improve this year," Rajoy said in a speech to parliament on Wednesday. "They are going to get worse."

But he has been under pressure to reassure markets that Spain is getting its house in order and that Europe's fourth-largest economy will not need a bailout.

The new labor rules also weaken collective bargaining, a longtime goal of Rajoy's business-friendly conservatives, who took control after a landslide victory over the Socialists in November. Many Spanish work contracts go back to the 1960s, when the country was under the politically repressive but pro-labor regime of dictator Francisco Franco.

Under the old system, "there are these super-protected workers with permanent contracts and long tenures, and then there is this other caste of totally temporary, extremely precarious [laborers] with virtually no rights," said Javier Díaz-Gimenez, a professor of economics at Spain's IESE Business School.

The reforms seek to close that gap, he said.

But Rajoy risks the ire of trade unions. At a European summit in Brussels last week, he was caught on an open microphone predicting that a general strike would be called in Spain once the public got word of the labor reforms.

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Photo: Spanish Prime Minister Mariano Rajoy is surrounded by journalists earlier this week after a parliamentary session. Credit: Pablo Blazquez Dominguez / Getty Images

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