UPDATE 2-Spain cuts firing costs in new labour reform

* Gov't says reform will curb jobless rate
* Will end contracts paying 45 days' severance pay
* Promotes use of part-time contracts
* Collective bargaining rules to change in times of crisis

By Andrés González
MADRID, Feb 10 (Reuters) - Spain cut severance pay for
workers on Friday and watered down collective bargaining rights,
giving more power to employers as it attempts to kickstart its
moribund jobs market and slash Europe's highest unemployment
rate.
The centre-right government said it would abolish contracts
allowing severance packages of 45 days' pay for every year
worked to employees deemed to have been unfairly dismissed - a
common finding by Spanish employment tribunals. Instead,
employers firing staff will have to offer just 33 days' pay per
year, or 20 days if the business is facing losses over a
sustained period.
It capped severance pay at the equivalent of two years'
wages, almost halving the limit from a previous 3-1/2 years and
said it would allow employers to ignore wage deals negotiated
across sectors in times of crisis. Such collective bargaining
agreements are often linked to inflation.
Labour reform is seen as key to Spain's efforts to persuade
markets it is able to slash its budget deficit and boost the
competitiveness of its fragile economy. Unemployment is running
at 23 percent, and half of young workers are without a job.

The measures, taken unilaterally by the government after a
pact between unions and business leaders failed to unlock some
key issues, are likely to trigger a general strike.
"It is an important and complete reform," Deputy Prime
Minister Soraya Saenz de Santamaria said in a news conference
after announcing the measures. "It will mark a before-and-after
in labour legislation in our country. The objective is to lay
the foundations to grow again and create work."
The government said it would try to end a two-tier labour
market that favours an older generation of workers with robust
benefits who are very expensive to let go, but gives few rights
to generally younger workers on temporary contracts.
Analysts said the reform may not have gone far enough, but
largely welcomed the steps taken.
"This is not automatically going to create work, but it is
going to generate confidence. The announcement of the 33 days is
still high by European standards. The ideal would have been to
make it 20 days," said lawyer Eduardo Ortega Figueiral.
The government, swept to power in November on a wave of
voter anger about the economy, also said it would encourage the
use of part-time contracts. The reform will also provide
incentives for firms to hire younger workers.
Analysts doubt unemployment will fall significantly this
year or next, however, meaning the costs of mass joblessness are
likely to continue dragging on the economy.
Yet Raj Badiani, economist at consultancy IHS Global Insight
said that if the new laws had been more radical then
unemployment levels could have crept even higher. He said the
reductions in severance pay was a prudent move given the
accelerating job losses.
"It would have been a big gamble to have cut this more
aggressively given firms are desperate to cut labour costs given
they need to price very competitively to prop up the inflow of
new business," he said, adding he hoped to see it brought down
to 20 days (per year worked) when the labour market had
stabilised in a few years time.
The measures are also aimed at maintaining voter support
ahead of key local elections in the southern region of
Andalucia, which has an unemployment rate of around 30 percent,
and the northern Asturias region.
The previous Socialist government reformed labour rules in
2010, but the changes were widely criticised for not tackling
wage-setting via collective bargaining or delinking salaries
from consumer prices.