Easing of firing rules will deepen recession, according to think-tank
The labour reforms passed in February by the right wing government of Mariano Rajoy will put a further 103,000-172,000 out of work this year, according to the think tank of the Spanish socialist party.
Fundación Ideas found that the reforms, which make it easer and cheaper to fire workers, are pro-cycical, meaning they will deepen the recession.
‘The reduction in wages and the higher than forecast unemployment will further reduce demand which will have an immediate impact on GDP and the deficit as it will lead to a fall in tax revenues, in particular VAT and income taxes and an increase in spending on unemployment benefits,’ according to a report by the think-tank.
The study estimates the economy could contract as much as 2.2% this year with wages falling by 2.5%. This in turn would mean a deficit of 5.6% of GDP and therefore a further €3.4 billion spending cuts on top of the €34.5 billion already planned in order to meet EU demands.
Spain’s jobless would exceed 6 million by year end, the report found.
Under reforms approved by Prime Minister Mariano Rajoy’s government on February 11, maximum severance pay is slashed from 45 days to 33 days salary for each year worked, for a maximum worktime of 24 years. It also will be easier for companies to opt out of sector-wide or country-wide union collective wage agreements.
Comisiones Obreras, the country’s largest trade union confederation, has said that under the new rules the next generation would be deprived of secure jobs, with women hit particularly hard by the erosion in employment rights as work-life balance and efforts to tackle discrimination in the workplace take a back seat.
Spanish workers will be protesting Thursday against the reforms in a general strike called by the Comisiones Obreras and UGT, the other main trade union confederation. Spain has seen only five general strikes since the country returned to democracy following the death of dictator Francisco Franco in 1975.
Spain has now officially fallen back into recession after the Bank of Spain said earlier this week that the ‘contractionary dynamic’ in the economy continued into early 2012 for the second quarter in a row.