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Spain’s parliament gave final approval Thursday for a sweeping overhaul of the labour market designed to slash soaring unemployment and revive the economy, despite union plans for a general strike.
The new law — which will make it easier and cheaper for employers to fire workers — was slammed by unions as backward step immediately after its approval by the lower house of parliament.
The International Monetary Fund has said the labour market reforms are “absolutely crucial” if Spain is to cut its jobless rate and rein in the deficit.
Spain’s unemployment rate has soared to more than 20 percent, the highest in the 16-nation eurozone, following the collapse of the building sector at the end of 2008.
The rise in joblessness has jacked up government spending on unemployment benefits, pushing Spain’s public deficit to 11.2 percent of gross domestic product last year, the third-highest in the eurozone after Greece and Ireland.
The Socialist government of Prime Minister Jose Luis Rodriguez Zapatero passed a 15-billion-euro (19-billion-dollar) austerity plan in May aimed at shoring up Spain’s public finances amid investor concerns it could follow Greece into a financial crisis.
The plan is on top of a 50-billion-euro package of spending cuts announced in January designed to progressively slash the public deficit to the eurozone limit of three percent of gross domestic product by 2013.
The Spanish cabinet unilaterally passed its own version of the labour reforms in June after three-way talks with unions and employers collapsed after nearly two years.
The lower house of parliament gave preliminary approval the same month and the final version that has been passed includes some amendments introduced by the Senate.
Several thousand representatives of the country’s two main unions attended a rally outside Madrid Thursday to prepare for a general strike on September 29 to protest the law.
“Now more than ever a general strike makes sense,” the head of the CCOO union, Ignacio Fernandez Toxo Ignacio Fernandez Toxo, told the rally.
His counterpart at the UGT, Candido Mendez, told the rally the strike would “defend what the country needs” in the face of reforms that are “a step backward on rights and in terms of employment.”
The government staunchly defended the measures Thursday.
Unemployment “continues to be the main economic challenge” facing the country and the new measures will “generate employment and stability,” said Minister of Public Works and Transport Jose Blanco.
They are “positive for all workers, for those that have jobs as well as those who are trying to find them,” he told an economic forum in Madrid.
Many economists blame the high jobless rate on the cost of firing workers in Spain, which makes employers reluctant to hire permanent staff and encourages the use of temporary contracts that have few benefits and rights.
Workers on full contracts are entitled to severance pay of as much as 45 days per year worked, one of the highest levels in Europe. Under the government reform this would be reduced to 33 days for some contracts.
The plan also includes the creation of a government-sponsored fund for each worker that could be used by firms to pay a portion of an employee’s severance in case of a dismissal.
Spain plunged into its worst recession in decades at the end of 2008 following the collapse of a decade-long property boom and only returned to tepid growth this year.