News

Labor market reforms

Severance pay lowered from 45 to 33 days of pay per year worked

AP

Madrid

02/10/2012

One of the labor market reforms approved by Spain's new conservative government lowers the severance arrangements from 45 days of pay per year worked to 33.

  • Fatima Bañez and Soraya Saenz de Santamaria. Photo: EITB

    Fatima Bañez and Soraya Saenz de Santamaria. Photo: EITB

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

The decree gives companies hiring incentives such as cheaper severance packages and offers tax breaks for taking on young people. It does away with severance arrangements in which some workers got up to 45 days of pay per year worked, and lowered this to 33 days in most cases for new contracts, although the change is not retroactive.

Companies facing hard times will also be able to bow out of collective bargaining agreements reached with unions, and have greater flexibility to adjust working conditions such as schedules, workplace tasks and wages depending on how the economy and the company are doing.

A clause allowing companies to keep workers on temporary contracts with little benefits for up to three years will be changed to lower the span to 24 months. Nearly a third of the workforce in Spain is on temporary contracts, a huge percentage that makes the jobless rate tremendous volatile.

Small companies with 50 workers or fewer will get tax breaks of 3,000 euro ($3,986) for hiring people under 30 who are seeking their first job. Spain's unemployment rate is nearly 23 percent, for people under 25 it approaches a staggering 48 percent.

Deputy Prime Minister Soraya Saenz de Santamaria said one of the overall goals is to make layoffs a last resort for companies. Other European countries, notably Germany, have been able to stabilize unemployment by letting companies have employees work fewer hours for less money rather than firing them.

She called the reform package "major, far-reaching and complete." "It will mark a before and after in the labor legislation of our country," she said.

Passage came after a Cabinet meeting, in the form of a decree, which means it will go before Parliament for a yes-no vote, with no possibility of amendment.

Approval is guaranteed because the ruling Popular Party has an ample majority.

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