MADRID (AP) -- Spain's new conservative government on Friday will pass labor market reforms deemed crucial to creating jobs to chip away at Europe's worst unemployment nightmare and restore confidence in a sick economy.
The Cabinet is expected to make it cheaper for companies to lay people off — a task the previous Socialist government also tried, only to see the jobless rate keep climbing. It is now at nearly 23 percent and the economy is shrinking.
The reforms are also expected to make it easier for companies to sidestep collective bargaining agreements with unions and change working conditions, including working hours and wages. The goal is to make for more flexibility and give firms options other than outright layoffs when times get tough.
Prime Minister Mariano Rajoy acknowledged this week the jobless rate will go up this year, and has said the labor market reforms could lead to a general strike.
Unions are likely to be angered over the collective bargaining change and have complained that the government has not advised it in advance on what reforms were coming, as previous governments have.
The reforms are chiefly aimed at creating employment but analysts believe it may be some time before the measures produce results and that the government may be obliged to introduce further, more aggressive reforms.
"If by October the destruction of employment has not stopped then Friday's reforms will not have worked," said IESE Business School Economy Professor Jose Ramon Pin. "As unemployment veers toward the 6 million figure, people will demand more reforms." It is currently at 5.3 million.
Pin and others fear Rajoy may not take the opportunity Friday to introduce truly aggressive reforms for fear of upsetting voters in upcoming regional elections in Andalusia, a traditional socialist stronghold which is now leaning toward Rajoy's Popular Party.
"It will be a mixed bag which will create a feeling of uncertainty in international markets, " said Pin. "If he (Rajoy) seriously wants to satisfy the markets he must go for radical reforms."
Talks in recent months between unions and Spain's main business federation led to an accord on wage moderation — ending the practice of indexing workers' pay to inflation — but not much else. So the government is acting on its own.
It is eager to restore investor confidence, satisfy the European Union and other international institutions seeking reforms and ward off fears Spain could need a bailout, as Greece, Ireland and Portugal have.
The reforms are the final thrust — for now — of a three-prong drive aimed at reviving an economy expected to slip back into recession this quarter after limping out of nearly two-year slump in 2010.
The first two reforms were a euro15 billion package of deficit-reduction measures and a plan to force banks to set aside euro50 billion more in provisions to cover their exposure to a real estate market that tanked three years ago. That implosion is largely responsible for Spain's economic crisis.
The conservative Popular Party took power in December after scoring a landslide win in November general elections that ended nearly eight years of Socialist rule.
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Ciaran Giles contributed to this report.
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