Spain set to pass labour market reforms aimed at job creation

Madrid: Spain's new conservative government was expected later yesterday to pass labour market reforms deemed crucial to creating jobs to chip away at Europe's worst unemployment nightmare and restore confidence in a sick economy.

The Cabinet is expected to make it cheaper for companies to lay people off — a task the previous Socialist government also tried, only to see the jobless rate keep climbing. It is now at nearly 23 per cent and the economy is shrinking.

The reforms are also expected to make it easier for companies to sidestep collective bargaining agreements with unions and change working conditions, including working hours and wages. The goal is to make for more flexibility and give firms options other than outright layoffs when times get tough.

Prime Minister Mariano Rajoy acknowledged recently the jobless rate will go up this year, and has said the labour market reforms could lead to a general strike.

"If by October the destruction of employment has not stopped then the reforms will not have worked," said IESE Business School Economy Professor Jose Ramon Pin. "As unemployment veers toward the 6 million figure, people will demand more reforms." It is currently at 5.3 million.

Pin and others fear Rajoy may not take the opportunity to introduce truly aggressive reforms for fear of upsetting voters in forthcoming regional elections in Andalusia, a traditional socialist stronghold which is now leaning toward Rajoy's Popular Party.

Mixed bag

"It will be a mixed bag which will create a feeling of uncertainty in international markets," said Pin. "If he [Rajoy] seriously wants to satisfy the markets he must go for radical reforms."

Talks in recent months between unions and Spain's main business federation led to an accord on wage moderation — ending the practice of indexing workers' pay to inflation — but not much else. So the government is acting on its own.

Failure to consult them likely to anger unions

Unions are likely to be angered over the expected changes to collective bargaining and have complained that the government has not advised them in advance on what reforms are coming, as the previous governments have done.

The reforms are chiefly aimed at creating employment but analysts believe it may be some time before the measures produce results and that the government may be obliged to introduce further, more aggressive reforms.