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This new Spanish Prime Minister is showing plenty of gusto. Later today he is set to announce a package of labour market reforms which are designed to overhaul Spain’s archaic employment laws. Measures expected in this package include a reduction in payroll taxes for struggling companies and incentives to employ part-time workers and award apprenticeships.
One huge impediment for employers in Spain has been the extraordinary cost of severance pay; for open-ended contracts, some companies are required to pay as much as 45 days severance pay for each year of service. As a result, companies have been cutting back on these contracts significantly, in favour of ‘temporary’ contracts.
Rajoy recognises that he needs to tackle Spain’s chronic unemployment problem – the most recent unemployment rate (23%) is the highest in Europe (above even that of Greece). Youth unemployment is virtually 50%. At the same time, he will be acutely aware that these measures could provoke a national strike.
Although controversial, the momentum for change in Spanish labour practices is definitely building. Last month, unions and employers agreed to remove the automatic link between wages and prices for the next three years.
It will take a long time, and it will be painful, but Spain is setting itself on the right path.
