Spain's labour reforms include cut in severance pay: report

4th June 2010, Comments 0 comments

Spain's government will cut severance pay and make it easier for employers to dismiss workers on permanent contracts under planned reforms of its rigid labour laws, Spanish radio said Thursday.

The government has been negotiating with unions and employers over the reforms, which the International Monetary Fund (IMF) has said are urgently needed.

Prime Minister Jose Luis Rodriguez Zapatero, a socialist, said Wednesday that the government would approve the new measures on June 16, whether or not there was an agreement.

Spain's unemployment rate has soared to 20 percent -- the second highest in the European Union after Latvia -- since the collapse of a property bubble at the end of 2008.

Many economists blame the high jobless rate on Spain's two-tiered labour market, which protects those on permanent contracts with generous severance pay guarantees while those on temporary contracts have few benefits and rights.

Under a draft text of the reforms seen by RNE public radio, the government would raise the severance pay for temporary contracts to discourage their use.

But it would also expand the use of those permanent contracts which allow for 33 days of severance pay, instead of the usual 45 days.

A fund with contributions from companies would cover eight of the 33 days, a system used in Austria, RNE said.

It would also ease the legal process for the dismissal of workers. And employers would have the option of reducing the hours worked by an employee instead of making them redundant, a measure in use in Germany.

"Labour reform is necessary in order to help to contribute to creating more jobs, bringing down the employment rate and to ensure we have much more fixed permanent job contracts than temporary contracts," Zapatero said on Wednesday.

Unions have threatened to call a general strike if the reforms are passed unilaterally by the government.

The IMF has warned that Spain's economy needs "far-reaching and comprehensive reforms" to its labour market and banking sector if it was to make headway on its own large debt and deficit problems.

Zapatero's government has passed austerity cuts to bring the overall public sector budget shortfall down to the eurozone limit of three percent of gross domestic product by 2013 from 11.2 percent last year.

The Spanish economy entered recession at the end of 2008 and only emerged with tepid 0.1 percent growth in the first quarter.

© 2010 AFP

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