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OECD urges Spain to do more labor market reforms

People wait for the opening of an employment office in Badalona, near Barcelona, December 3, 2013. REUTERS/Albert Gea
People wait for the opening of an employment office in Badalona, near Barcelona, December 3, 2013. REUTERS/Albert Gea

By Blanca Rodríguez

MADRID (Reuters) - Spain could further cut severance pay and better match training programs to business needs among new steps to reduce Europe's second-highest jobless rate, the OECD organization of wealthy countries said in a report on Wednesday.

The report by the Organization for Economic Co-Operation and Development praised Spain, which is just emerging from a prolonged economic and financial crisis, for the deep labor market reform passed last year but said more could be done.

More than one in four Spanish workers is jobless, only Greece has a higher jobless rate in Europe, and about half of workers 18-25 years old are unemployed.

Centre-right Prime Minister Mariano Rajoy said on Wednesday the jobless rate at the end of 2013 would be unchanged from the end of last year but would improve next year.

Rajoy adopted new rules in 2012 making it cheaper for companies to lay off workers and limiting the power of labor unions to negotiate collective bargaining agreements across entire industries or geographic regions.

The 2012 labor market reform was one of the most successful reforms adopted by Rajoy, who has also drastically cut public spending to try to close a yawning budget gap and pull Spain out of a five-year economic and financial crisis.

The OECD report said preliminary analysis of the reforms showed they have helped bring down wages and made it easier for companies to adjust shifts and working conditions to avoid terminating workers.

The report estimated 25,000 new permanent contracts are signed every month, mostly in larger companies, due to the reform.

However, it said most hiring in Spain was still on temporary contracts, and that the gap in benefits for temporary and permanent contracts was still too wide.

The OECD report suggested that one way to attack that problem was to extend the trial period for new employees hired by smaller companies, which is currently one year.

Labor Minister Fatima Banez said in a speech to Senators on Tuesday that the government plans to continue to tweak labor laws.

"Not only have we been ambitious in our goals, we've been ambitious about the results. That's why we are continually evaluating our policies to be able to improve them over time," she said.

The report also said that severance pay could come down further, gradually. The reform has already cut it to 33 days of pay per year worked from a previous level of 45 days, but it is still one of the highest among OECD member countries.

"A greater convergence of employers' costs of termination for permanent and temporary contracts would be desirable," the report said in its conclusions.

The government also needs to do better at matching training programs to business needs, the OECD said. Millions of jobless Spaniards once worked in the construction industry in a building boom that ended in 2008 and is not expected to return.

The OECD report noted that Spain's relatively generous unemployment benefits were an important cushion because labor market reforms will force some workers out of work, but it also warned they should be strongly conditioned, and withdrawn for people who refuse job offers.

Spain's spending on jobless benefits is equivalent to around 3 percent of economic output, the highest level in the OECD, while spending on more active policies, such as job training programs, is only 1 percent of gross domestic, mostly in tax breaks and other bonuses for companies that make new hires.

(Writing by Fiona Ortiz; Editing by Julien Toyer)

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