Spain approves crucial labor market reforms

MADRID — Spain's new conservative government approved sweeping labor market reforms Friday as part of a drive to revive a sick economy and solve Europe's worst unemployment nightmare.

With the jobless rate at nearly 23 percent, the plan is designed to encourage companies to hire more people by cutting severance packages and offering tax breaks for taking on young people.

Spain is eager to restore investor confidence, satisfy the European Union and other international institutions by seeking major structural reforms in order to cut its deficit and ward off fears that it could follow Greece, Ireland and Portugal in seeking a bailout.

Under the new package of measures, Spanish companies facing hard times will be able to pull out of collective bargaining agreements and have greater flexibility to adjust an employee's schedules, workplace tasks and wages depending on how the economy and the company are doing.

The country's severance packages — long seen as among the most generous of many countries — will also be cut from 45 days of severance pay per year worked to 33 days.

A clause will also be introduced that will cut the amount of time companies can have their workers on temporary contracts with few benefits. Nearly a third of the work force in Spain is on temporary contracts, a huge percentage that makes the country's jobless rate so volatile. As of Jan. 1 2013, workers must be moved on to permanent contracts after 24 months. Following Socialist reform of 2010 companies could run temporary contracts indefinitely.

About 1,000 protesters held an illegal, impromptu demonstration in Madrid's central Puerta del Sol plaza late Friday.

"The labor reforms approved aren't likely to achieve their proposed goals," Cristina Fernandez, a 52-year-old business consultant, said. "To reduce unemployment, you need to create jobs, not simplify firing," she said as she carried a placard reading, "Every cut mutilates my rights."

Small companies with 50 workers or fewer who hire people receiving jobless benefits will get 50 percent of that person's unemployment benefit while the employee will continue to receive 25 percent of the payments along with their wage. This way the person gets a job and the government saves on a quarter of the dole payments.

Meanwhile, self-employed people wishing to set up a business will receive tax breaks of €3,000 ($3,986) for the first person they hire if that person is under 30.