Spanish government approves labour market overhaul

Spain’s socialist cabinet approved Wednesday a contested reform of the labour market that is deemed crucial for reviving the economy, Deputy Prime Minister Maria Teresa de la Vega said.

“It is a necessary labour reform, of the future, one of the most important reforms of the last 20 years,” she told a news connference following a special cabinet meeting called to approve the measure.

The reform — which makes it easier and cheaper for firms to fire workers — must still be approved by parliament, where the government is seven seats short of a majority.

Spain’s two largest unions, the CCOO and the UGT, which represent more than two million workers, on Tuesday called for a general strike on September 29 to protest the labour market reform.

Spain’s unemployment rate has soared to 20 percent, the highest rate in the 27-nation European Union after Latvia’s, following the collapse of the labour-intensive construction sector at the end of 2008.

Many economists blame the high jobless rate on the high cost of firing workers in Spain, which makes employers reluctant to hire 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 government reform also calls for 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.