MADRID (Reuters) — Spain's over-reliance on short-term work contracts remains a major challenge as it overcomes a deep economic crisis, the European Commission said on Wednesday, adding it could hinder growth of productivity.
Jobs will be a key concern for Spanish voters in a Dec. 20 general election, even amid an economic recovery that has prompted companies to start hiring again.
Spain's unemployment rate has dropped from a peak of 27 per cent two years ago, though at just over 21 per cent it is still the second highest in Europe after Greece and one of the most damaging legacies of a double-dip recession.
Much of the work being created is short-term — 26 percent of all contracts are temporary, more than anywhere else in the euro zone — accentuating a two-tier labour market that left these types of workers in the firing line during the crisis.
"Duality in the labour market remains a serious challenge as the share of temporary contracts has increased," the Commission said in a periodical review of Spain's economy and banks after some of its weakest lenders needed an international bailout in 2012.
Spain has since exited the rescue program and its economy is growing at one of the fastest rates in the euro zone. The Commission said job creation was strong and the banking sector had stabilized, but that imbalances remained.
"Persisting segmentation in the labor market risks holding back productivity growth," it added.
A 2012 labour reform program by the governing center-right People's Party (PP) made it cheaper for employers to fire staff, aiming at the same time to create incentives for hiring. But its critics say it failed to reduce the number of jobs at risk.
The labour debate has been central to political campaigns ahead of the closely fought election, which the PP is expected to win.
The opposition Socialists and anti-austerity party Podemos have vowed to scrap the 2012 labour reform plan, which lowered severance pay for employees, and build a new charter of workers' rights.
Centrist party Cuidadanos is pushing for a one-size-fits all contract as a means of doing away with temporary work.
The PP has no plans for further labour reform, though Economy Minister Luis de Guindos, who is unlikely to serve again in another PP government, said on Monday additional measures could be taken to improve labour rules or encourage hiring.