Spain passes job reforms aimed at overcoming high unemployment, big deficit

By Daniel Woolls, AP
Thursday, September 9, 2010

Struggling Spain OKs labor market reforms

MADRID — Spain gave final approval Thursday to labor market reforms designed to shake up a listless economy and help slash a bloated deficit that has prompted European-wide worries of another Greek-style debt crisis.

But it was hardly a day for the government to cry victory, as most parties voted against the changes and lambasted Prime Minister Jose Luis Rodriguez Zapatero, whose approval rating has sunk to under 30 percent.

Union leaders, who are generally close allies of the Socialist government, said a general strike planned for Sept. 29 is now more justified than ever.

One key thrust of the reforms as Spain battles a 20 percent jobless rate and struggles to crawl out of recession is to make employers less wary of hiring by making it cheaper and easier for them to lay people off.

Spain has been a key focus of Europe’s debt crisis, which began in Greece. It ran a deficit equal to 11.2 percent of GDP last year, far above the EU limit of 3 percent. Troubled government finances mean Spain, along with Portugal and Greece, is having to pay higher interest rates to borrow.

Under pressure from bond investors, governments are slashing expenditure and raising taxes — but this raises fears that such austerity moves will kill off growth and in the long run make it even harder to pay back bond debt.

Spain’s efforts to restructure its hidebound regulations on hiring and firing are one effort to boost growth in coming years.

The reforms are designed to give companies more flexibility by making it easier to transfer workers to other parts of the country — Spaniards tend to be very attached to their native regions — or change their job roles within the company.

Other goals are to crack down on workplace absenteeism and discourage companies from giving workers only temporary job contracts with few benefits. A full third of the work force now has these so-called garbage contracts, making the joblessness rate vulnerable to swings when the economy tanks because such workers are the first to get sacked when things go bad.

Most of the measures have already been in effect since they passed as an emergency decree in June, and early data from the Labor Ministry as to whether they are working are not encouraging. Of all the new jobs created in August, only 6.6 percent involved open-ended, full-scale contracts of the kind the government wants to promote, the ministry said in a report last week.

Also, companies will be able to try to lay people off — with the lowest available rate of severance pay — if they are losing money, expect to in the future, or suffer from a “persistent” drop in revenue.

Only a weak smattering of applause greeted the final votes in the ornate parliamentary chamber, showing how isolated Prime Minister Zapatero is because of his handling of an economy that tanked when Spain’s real estate bubble burst about two years ago.

Many opposition parties say he ignored the crisis for too long and is acting belatedly, especially with reforms of a job market that employers have long criticized as too rigid.

Unions call the reforms blatantly pro-business and have cited them — and plans to extend the retirement age from 65 to 67 — as reasons for the general strike they have called for Sept. 29.

One union leader, Fernando Toxo, called the labor market reforms “the biggest attack on workers’ rights” since Spain regained democracy after the death of Gen. Francisco Franco in 1975.

“Today, more than ever, the strike makes sense,” he told a boisterous union rally at which people yelled for Zapatero to resign.

The package had already been approved as an emergency decree in June by the lower chamber of the legislature and has been in effect since then. Thursday’s votes in that chamber were on a series of technical amendments introduced last month by the Senate. Most were rejected, including several that sought to make the reforms more favorable for employers.

Zapatero, who runs a minority government, got the package through with the sole votes of his Socialist party and abstention from a Basque nationalist party that he is wooing furiously for support on his next challenge, which is much bigger: passing a budget for 2011. That process starts later this month, and the government has all but acknowledged that if it cannot pass a budget it will have to call early elections.

The government says it will be a lean spending blueprint, with spending by government ministries cut on average to the levels of 2006.

The government has warned that the economy, which has only just begun to grow after nearly two years of recession, might weaken yet again because of austerity measures passed in May and a rise in VAT taxes in July, both of which could sap consumption.

The labor market reforms’ pointman, Labor Minister Celestino Corbacho, tried to sound optimistic Thursday. But he acknowledged that many in Spain think these changes will not really help resurrect an economy that showed only anemic growth in the first two quarters of this year even as Germany and other European countries recover from recession in more robust fashion.

“Some have said that this reform probably comes up short. Time will tell. It is probably more far-reaching that some imagine and believe, and if that is so, it means the reforms are good,” Corbacho told the lawmakers.

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