Spain's Socialist government on Friday unveiled details of its proposed labour market reform that is aimed at reviving economic growth and allaying jitters over its public finances.
Among the measures included in the draft published by the labour ministry is the creation of a government-sponsored fund for each worker that could be used by firms to pay a portion of an employee's severance in case of a dismissal.
The fund, modelled after a system in place in Austria, would be set up in 2012.
The reformed labour law would also limit the length of fixed-term contracts to two years, with the possibility of an extension of one year, and allow companies to reduce worker hours in a downturn instead of dismissing staff.
Spain's unemployment rate has soared to 20 percent of the workforce -- the second highest in the European Union after Latvia -- since the collapse of a property bubble at the end of 2008.
Many economists blame the high jobless rate on the high cost of firing workers in Spain, which makes employers reluctant to hire staff and encourages the use of temporary contracts that have few benefits and rights.
Nearly one in four Spanish employees, 24.3 percent, were on temporary contracts during the first quarter of this year, according to national statistics agency INE.
Prime Minister Jose Luis Rodriguez Zapatero's cabinet will approve the labour reform on Wednesday and it will then be voted on by parliament on June 22 where his socialist government are seven seats short of a majority.
"It's going to be a substantial labour reform for our labour market, and I trust it will have majority support in parliament," Zapatero told reporters on Thursday during an official visit to Italy.
Last month the assembly passed the government's 15-billion-euro austerity package, which includes cuts to public workers' salaries, by just one vote as a number of government backbenchers either abstained or voted against the plan.
The government is pushing ahead with its own version of the labour law reform after talks between unions, employers and the government to reach a consensus collapsed Thursday after nearly two years of meetings.
Spain's two largest unions, the CCOO and the UGT, have threatened a general strike if the government unilaterally imposes reforms that hurt workers.