The Spanish goverment is going to lower the countries high dismissal costs to try and kick start the economy. They have presented plans to reform the labour market and the dismissal costs are the spearhead of the plan.
Mariano Rajoy, prime minister of Spain sees the labour market as one of the key elements to focus on in order to improve the economy. Spain’s near-23% unemployment rate is more than twice the European-Union average. Almost half the Spanish youths under 25 who would like to work are not able to do so. Spiraling unemployment, along with a runaway budget deficit, has spooked investors and sent Spain’s borrowing costs shooting upwards.
“The reform will provide the framework to allow the creation of stable employment,” Labor Minister Fatima Banez told journalists after the government’s weekly cabinet meeting. The decree that has been approved should lower the cost of an unfair dismissal with an open ended contract to 33 days payment per year worked in stead of 45. It will also make it easier for companies to justify a fair dismissal where they only have to pay 20 days.
Jose Ramon Pin, management professor at the IESE business school in Madrid, said these changes were “a very important step” but that they don’t go far enough. These costs will remain higher than European averages. Many people think that the high dismissal costs keep companies back from hiring new staff and laying of staff that does not do their job properly and that major reforms on the labour market are needed.