Spain warns it will impose labor market reforms if unions, businesses fail to reach agreement

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Spain presses for labor market reform deal

MADRID — Spain’s Socialist government warned Monday it will impose labor market reforms if unions and management fail to agree on changes needed for Spain to resurrect its economy — and reassure markets worried about the country’s ability to show growth and pay off debt.

The labor market talks have taken on new urgency with Prime Minister Jose Luis Rodriguez Zapatero under pressure from the European Union, the International Monetary Fund and even President Barack Obama to take bold action and ward off a Greek-style debt crisis that would further hurt the euro.

Two ministers warned the government will give unions and management a few more days, then act decisively if needed. Hours later, another round of talks ended inconclusively.

Unions have said that if such a unilateral government decree goes against the interests of workers, they will call a general strike, adding to problems faced by the Socialist government, which last week won passage of a key austerity package by only one vote in Parliament.

Monday had been the deadline for a deal. Industry Minister Miguel Sebastian said the government will be flexible but wants an answer this week or “will have to act on its own.”

“Rest assured, if those talks ultimately do not produce the results we all want, the government is going to implement labor market reforms over the very short term,” Finance Minster Elena Salgado told a business forum.

Many economists criticize Spanish labor law as excessively rigid, discouraging employers from hiring, which is what Spain needs desperately now. In the first quarter of this year, Spain limped out of nearly two years of recession with a jobless rate of just over 20 percent, the highest in the 16-nation euro zone.

Most workers now are entitled to severance pay of 45 days per year if they are laid off — one of the highest levels in Europe and the main bone of contention in the talks between Spanish unions and the country’s main business federation.

Businesses say that kind of expense makes them wary of hiring, and thus they often resort to temporary, fixed-term contracts that cost them nothing in severance pay.

Indeed, a full third of the Spanish work force has this kind of contracts — a proportion also very high by European standards— and most of the people laid off in Spain during the recession had them. The government wants the current talks to limit such contracts so people have more job security and the labor market is not so volatile if the economy tanks.

The newspaper El Pais reported Monday that the government is preparing a decree that would lower severance pay to 33 days per year worked for people with full contracts, although it would not affect existing contracts. Sebastian, speaking in Brussels, declined to confirm this.

The paper said the two sides are nearing agreement on measures to fight a youth unemployment rate of a staggering 40 percent and allow businesses to have workers put in fewer hours during economic downturns, as a way to avoid layoffs.

But they are far apart on the severance pay issue and other rules about firing staff, El Pais said.