A red rag before the workers: Peter Torday reports on Spain's efforts to curb unemployment by reforming the labour market

FEW countries will be more interested in the outcome of next week's special summit of G7 finance and employment ministers than Spain. The topic of the meeting, which takes place on Monday and Tuesday in Detroit on the initiative of President Clinton, is jobs - or rather the lack of them - in the industrialised world.

The Americans and Japanese have their own problems but they are nothing when compared to Europe, where 22 million people are out of work - the lion's share of the 35 million total for the industrialised world.

And within Europe, the biggest sufferers are the Spanish, where 24 per cent - 3.7 million - of the labour force are without work. The figures is likely to go above 25 per cent by 1995.

Ironically, concern over Europe's stagnating job creation has been as great outside the Continent as within it, with many foreigners alarmed at the prospect of Europe falling behind in the global economic hierarchy.

Nevertheless, there are growing signs of a willingness to address the problem - in Spain at least.

Faced with Europe's worst jobless crisis, the socialist government in Spain has finally decided to acknowledge the part played in the problem by the country's rigid employment practices.

It has prepared a radical deregulation of the labour market, in some cases overturning rules stretching back to the Franco era.

The new bill, which is planned to become law in July, should go a long way towards allowing employers significantly more freedom to hire and fire. This in turn should dislodge one of the principal barriers to new job creation, and make Spanish business more competitive.

In the short term, however, the reforms look certain to generate some rise in the unemployment rate.

Admittedly, Spain's jobless rate is probably overstated. Like Italy and Britain, the country has a significant underground economy. And a large slice of employment, such as the tourism industry, is seasonal and its ebb and flow can exaggerate the figures.

Moreover, as the Organisation for Economic Co-operation and Development has observed: 'The changes in unemployment coverage and in training programmes since mid-1985, as well as the deficiencies in monitoring registered unemployment, seem to have entailed an increase in the unemployment rate over the past two years.'

The OECD adds: 'It seems that many people who cannot be considered as active job seekers are registered as unemployed.'

But even with all these caveats, the Spanish rate of unemployment is sufficiently eye-catching to merit determined attention. And alongside the budget deficit, joblessness is considered the country's gravest economic problem.

The rigidity of the labour market is striking. Companies have to deal with huge numbers of job classifications, each with its own pay scale.

Firing a permanent worker can entail redundancy payments as high as four, or even five, times the annual salary. So hiring a permanent worker is something no employer does without considerable forethought.

Both these problems are addressed by the new bill. Once it becomes law, workers will only be able to secure 20 days' pay for each year worked, with a maximum equivalent to one full year's salary.

Even that compares favourably, from the employee's point of view, with Britain, where the legislated minimum ranges between half and 1.5 weeks' pay for each year worked, after two years of continuous service.

The bill will also allow much more flexibility between jobs, currently hidebound by demarcation rules reminiscent of the 1960s and 1970s in Britain.

The deregulation will also loosen strict rules governing hours worked, which have driven up overtime bills needlessly. And it will broaden the circumstances under which workers can be justifiably dismissed.

Because of the rigid employment laws, companies have resorted to maintaining workers on temporary contracts in large numbers. Some 40 per cent of the working population is now employed on such temporary terms.

Nevertheless, the labour reforms aroused such anger that a one-day general strike was called on 27 January. But while bitterly opposed by the unions, the bill has enjoyed successful passage through parliament, in theory ending an environment in which it is just as costly to fire workers as to maintain unproductive staff in employment.

In a rare move, the right-wing opposition supported the change. But there is deepening concern that the unions may still force a confrontation with Felipe Gonzalez, the Prime Minister, unhinging the new law or even precipitating an early general election.

There are signs, too, that industry is not convinced that the new laws will ever come into force.

In a symbolic blow to a country that prizes foreign investment, the Japanese motor manufacturer Suzuki recently pulled out of the jeep-building Santana motor plant in Linares, devastating employment prospects in the town.

The new bill follows earlier measures that have cut back on generous unemployment and sickness benefits - the latter the victim of widespread abuse.

Another abuse is the practice of signing on for benefits while already working. Under the new bill, the Spanish authorities will be able to strike people off the unemployment register once they have refused a second job offer.

Spain, like many industrial countries in Europe, faces the awesome challenge of cheap labour from China, South-east Asia and Eastern Europe.

A high proportion of the workforce was once unskilled, even uneducated, but that ratio has fallen rapidly since 1985.

None the less, as Morgan Stanley, the investment house, has observed: 'There will be major structural problems in rigid and expensive labour markets that will generate political consequences. Western European labour is the major loser.'

Like France, Spain is considering measures to encourage job creation and training, including plans for on-the-job training at below-minimum wages. These are aimed chiefly at encouraging young people, who represent the largest group without work, into employment.

(Photograph omitted)