By Belén Carreño

MADRID (Reuters) – A revamp of Spain’s labour rules has led to a 142% rise in young workers with permanent contracts in a country where rates of youth unemployment and under-employment have been among the highest in Europe since the global financial crisis.

The increase is evidence that the Socialist-led government’s 9-month-old labour reform is reversing the easy hire-and-fire regime put in place after the sovereign debt crisis a decade ago – rules hailed at the time as putting the country on a low-cost, competitive footing, but also criticised for eroding workers’ rights and prompting many young Spaniards to emigrate.

Youth unemployment rates that reached more than 55% in the years after the financial crisis fell to 31% in the third quarter – against an overall unemployment rate of 12.6%, according to the National Statistics Office, INE.

Youth unemployment is a chronic problem in southern European countries. One in four young people were unemployed in Italy during the summer, according to Eurostat.

Greece, whose rates of youth unemployment are similar to Spain’s, wants to reduce its youth unemployment rate to 18% by 2030 and is introducing subsidies for pension and health fund costs to reduce labour costs, as well as special training programmes.

While youth unemployment rates improved in Spain with the economic upturn after the financial crash, by the summer of 2021 seven out of every 10 under-24s had a temporary contract. That rate fell by 13 percentage points in the third quarter of 2022 following the new labour regulations, making Spain slightly better off in this regard than richer economies such as the Netherlands or Italy.

The labour reform, negotiated with employers and unions and introduced in March, abolished most temporary jobs in an attempt to provide job stability and reduce the unemployment rate. Previously, employers used temporary contracts as a safety net in times of crisis.

GRAPHIC: Change in permanent contracts for those under 24 years of age (https://www.reuters.com/graphics/SPAIN-ECONOMY/jnpwyyjxwpw/chart.png)

“Finding an apartment is going to be easier now,” said Cristina Garcia, 24, who secured her first permanent contract as a receptionist at a multinational company in Madrid in September.

Garcia’s case is an anomaly in Spain, where the number of young people aged 16-24 who were able to move out of their parents’ home was just 4% in the first half of 2022, according to the Spanish Youth Council. That compares with an EU average of 17.7%.

Even so, young people say things are changing.

After five years working as a computer scientist at a technology company in Madrid, Sami Khalaf, 28, signed his first permanent contract in February.

“I intend to save money, I see things differently,” said Khalaf, who moved out of his parents’ house some months ago.

Stable contracts can boost consumer confidence and drive spending, said Raymond Torres, chief economist at the Funcas think tank in Madrid. Torres said the strength of Spain’s labour market has been one of the pillars of the country’s unexpected economic resilience during a period of global weakness.

Before the labour reform, the rate of temporary contracts, which in the last decade has been around 25% of all jobs, resulted in a high turnover of jobs, inflating the overall unemployment rate.

“We have put an end to the idea that the introduction of young people into the workforce needs to be done through unstable contracts,” Joaquin Perez-Rey, the deputy labour minister who designed the reform, told Reuters.

The labour reforms in March included a controversial provision to make it easier to give permanent contracts to seasonal workers in sectors such as tourism and farming. Such workers are entitled to benefits when not actually working but are not counted as unemployed as they can be called up at any time by their employer.

The number of these so-called discontinuous contracts signed by young people aged under 24 has gone up by five times in the year to November, with that age group one of the most employed under such contracts.

“Whether this is better or worse than having several temporary contracts is debatable,” said Miguel Angel Malo, professor of economics at the University of Salamanca, referring to the discontinuous contracts.

The Spanish furlough system, introduced to the majority of the labour market during the pandemic, has also boosted permanent hiring, said Adrian Todoli, a labour law professor at the University of Valencia.

“Employers now know that they can bank on these mechanisms if there’s a crisis, as was the case during the pandemic” Todoli said.

Cristina Garcia says her 4.5 hours-a-day contract brings in enough for her to start looking for an apartment with her partner.

“I’m looking to work weekends to earn a bit more, but we’ve done the maths and we can do it,” she said.

GRAPHIC: Permanent contracts as a % of total by age https://www.reuters.com/graphics/SPAIN-ECONOMY/xmpjkkbldvr/chart.png

(Reporting by Belén Carreño in Madrid; Additional reporting by Valentina Consiglio in Rome and Eleftherios Papadimas in Athens; Editing by Charlie Deveraux and Frances Kerry)

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