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Prime Minister, Jose Luis Rodriguez Zapatero, has proposed to adopt the German model of 'reduced working hours schemes' allowing firms to cut labour cost without making staff redundant, Agence France Presse reports.
In Germany, the government pays workers 67% of the income loss caused by working less hours. Zapatero said "I think the overhaul of our economic growth model requires reforms in all areas of the economy including labour relations."
According to the latest statistics published by the European Union, unemployment in Spain has reached 19.3% in October, the second highest rate in the 27 nation bloc behind Latvia.
Spanish employers have for years argued that the government needs to lower the cost of firing workers in order to encourage companies to hire staff and boost the economy but the Prime Minister has repeatedly refused to take any steps in that direction.
"I firmly believe our commitment should be to strengthen our companies without harming workers", Zapatero said earlier this week.
European Central Bank President, Jean-Claude Trichet, told a conference in Madrid last week "in Spain, the burden of the current crisis has fallen disproportionately on temporary workers. Compensation for those employed on a permanent basis has seen only minor adjustments. Looking into the future, wage flexibility will need to be made more widespread."
Whilst the Euro zone as a whole, the US and Japan are beginning to emerge from recession, Spain's gross domestic product has contracted by 0.3% in the third quarter. Europe's fifth largest economy has suffered disproportionately from the current credit crunch because growth relied heavily on domestic demand and the property boom, which were both fuelled by easy access to loans, which have dried up.