Spain's right-leaning government slashed employees' maximum severance pay in a sweeping labour reform unveiled Friday to confront a near 23-percent unemployment rate.
The drastic labour market shakeup, which risks sparking a union backlash, was the third major reform in two weeks by a government racing to find an antidote to Spain's deepening economic malaise.
After proposing legislation to cut the annual public deficit to zero by 2020 and enacting a reform obliging banks to set aside 50 billion euros against soured property assets, Madrid is now targeting the jobs crisis.
"The government's goal is to fight joblessness," Employment Minister Fatima Banez told a news conference after Prime Minister Mariano Rajoy's cabinet adopted the new measures in a decree.
"It is a reform that can be considered historic."
The number of jobless people shot above five million at the end of 2011, sending the unemployment rate to 22.85 percent -- double the European average and the highest in the industrialised world.
Among those aged 16-24,the jobless rate was 48.6 percent.
Some analysts argue that part of the problem is high severance costs deterring employers from hiring.
Others say the real problem is a major split in the market -- on the one hand there are permanent contracts based on collective bargaining that offer high severance pay; on the other temporary workers have little protection.
The latest reform, which affects small businesses and the self-employed accounting for 85 percent of all workers, effectively cuts the maximum severance.
The previous Socialist government, ousted in November 20 elections by the Popular Party, had introduced a new labour contract with a 33-day-a-year maximum severance and just 20 days for financially-driven layoffs.
But that contract, introduced in July 2010, was rarely used and the traditional contract offering 45 days a year in compensation for lay-offs remained the norm.
Under the new rules, the traditional contract disappears, leaving employers no choice but to use the new formula offering less compensation to staff being laid off.
"The goal is to make it easier to hire new workers in our country, especially the young and long-term unemployed," Deputy Prime Minister Soraya Saenz de Santamaria told the news conference.
The reform also:
Gives small businesses a 3,000-euro tax cut for the first hiring of an employee aged under 30.
Allows an unemployed person who finds a job to combine 25 percent of the unemployment benefit with the new salary for one year.
Authorises private temp agencies to operate as employment agencies for job seekers.
Encourages in-company training.
Unemployment has tripled since 2007, when it dropped to a low of 7.95 percent a year before a property bubble implosion that laid waste to millions of jobs in the construction sector.
"We destroyed a great number of jobs very quickly, starting from a situation of near full employment between 2007 and 2008, and very quickly getting to very high unemployment rates," said economy professor Javier Velazquez at Madrid's Complutense University.
"We will have a hard time getting the rate back below 10 percent in the next decade," he added.
Employers and unions have already agreed to limit pay increases to a maximum 0.5 percent in 2012 and then 0.6 percent in 2013 and 2014.
But street protests against austerity measures are growing. Tens of thousands of public sector workers marched in Madrid Tuesday and a new rally was being organised Friday evening.