Having been on the receiving end of a corporate bankruptcy recently, I think Spain's labor laws are a bit weak and watering down unemployment benefits is a mistake. What is needed is to refine the administration of whom receives them.

Asterault, I think you may have hit it on the head! Well put!

Not all the unemployed have rights to the unemployment benefits, only the ones who have been working before and only for a proportional time, if you have working (and paying your unemployment taxes) for less than one year you have no right to any benefit. When you have worked one year you have right to three months of benefit (I think it's three months by worked year until a maximun of two years of benefit).
There are cheats with this, but I think the Spanish worker is too indefense against being fired (probably not as much as in America).
I don't think the reasons of unemployment are that people doesn't want to work or that they have an unemployment benefit.
There is a lot of people who has to leave their town to find a job in Madrid or any other part of Spain. That's why there is such a big fight when the government talks about reforming the mines or the fishing, Gov. offers benefits and retirements to the actual miners or fishers but they fight for the future of their sons and the future of the region, because they close mines or ships but they don't give job alternatives.
I really don't know the reason why the unemployment in Spain is so high, but the law the Gov. has approved won't solve it, although it may change statistics, the reality will be very similar.

Miguelito,
Although some people leave their hometown and move to Madrid or other places to find a job, you still have a large number of people that refuse to leave home, even if it means the only way for them to find meaningful employment. Not that I think that that is a major factor, but there aren't enough people that are willing to move for a job. That's true for Spain, the US (I know plenty of people in both places that don't want to leave the town they grew up in, and many times in the US, you're lucky if they've even gone to a different state for a weekend trip!) and many other places. The problem is we're not speaking about fishermen, or farmers or laborers, but a bigger problem arises with educated people, especially when those people want to stay in a place with no need or not enough of a demand for them.

I know that if you work for 6 months outside of Spain and then come back to Spain, you can collect unemployment. My girlfriend was working in the states for 6 months and was told that she could get unemployment, but she didn´t have a contract that was to the liking of INEM and so she gave up. I know another spainard that spent 3 months working in France and is going back to work there for another 3 months just so that she can come back and get unemployment.

About the labor laws not being strong enough, I think that in general European labor laws are too restrictive. There was an article in the The Economist recently that talked about a recent report that came from a EU study about productivity. They found that productivity gains are made mostly by two events, existing companies making improvements and also by new companies (think start-up) replacing old companies that aren´t as productive. The report found that it is much easier and cheaper to start a new company in the USA because you can hire someone without worrying about fireing them later if funding runs low or the company has to make a change, while start-ups in Europe tended to need more money to start and also grew at a much slower pace with a pricipal reason being that companies are afraid to hire new people if they won´t be able to easily get rid of them if the money gets tight. Because of less start-ups Europe has less productivity gains, and in the long run, will grow much less economically than the USA. There were some other problems non-labor related, like the fact that a business license in the USA takes around 7 business days and sometimes 90 days in Europe. Here is a link ("The white heat of technology") to the story, but you have to pay $2.95 to see it. I guess being economists and all they actually want to make money.

So maybe through all of this is an eventual deregulation of the labor markerts in order to increase growth and productivity of the economy which would create more jobs.

Okay sorry for the beast of a post, it´s just that after studying economics for 4 years, when I start to say a little thing about it, everything comes out.

But the compensation for being fired depends on the time you have been working, I'm not sure, but if you have been working only for one year the firm will have to pay you from 20 to 45 days of salary, which is not so much, overall if you think in Spanish salaries which are so low. And there are special regulations if a company needs to fire a great amount of people. I don't know a lot about this, maybe the social secures are higher, I think the company has to pay the 70%?? of your salary for the social secure (which includes the right for future pension when retired, the medical attention, and the unemployment secure), the worker pays another 10%??, sorry I don't know very well this amounts. So when we complain against the new law is because we are paying for un unemployment secure that we're not going to have right to. In fact, now there's a superavit and the Gov is using this money for other things.
About the people returning from other countries, I think there are different laws depending if the country is in the EU or not, but it's a good policy to help people to work abroad for sometime, like in everything, there's people who abuse of these helps.

About what Espe said, I think that with good oportunities, people move, you can see it in the IT companies, there's people from all Spain because there has had a big demand, but almost of the jobs don't worth to move for them (I mean the bad paid jobs with no career).

Miguelito,
Yes, many people will move. I'm just saying that MANY will not! Its not a criticism. Let me just give you an example, my Fiancee's brother, moved to madrid, because he had better opportunities there, the majority of his friends stayed in their town. Another friend of mine, his girlfriend refuses to leave their town, won't even go to a bigger one only 40 minutes away because she doesn't want to leave home. And HE won't go because she won't! You also have to add in the fact that besides it being so expensive, and this is a fact, that most Spanish people live at home until they get married, partially because they ARE so comfortable living at home! Obviously people who are willing to move, will have better opportunites career-wise. Many know this, and it is why they leave.. the same happens in the US. But the question went to the general unemployment of the people, not based in IT careers, as some industries simply require people to go to a particular place for jobs. I did marketing and public relations, and a small town if I want work, is NOT a good place for me to be in, USA, Spain or pretty much anywhere! Just for an example!