By Fiona Ortiz and Feliciano Tisera
MADRID (Reuters) - Sylvia knew things would be tough, but never like this.
With a masters' degree in publicity, the 24-year-old has been working for more than two years, full-time, in an internship that is starting to feel like it will never end.
Paid 300 euros a month for the same work as the salaried public relations professionals who sit next to her, she doesn't earn enough to move out of her parents' house and her bus pass and lunch expenses eat up most of her pay.
But despite feeling her multinational employer is flouting rules that limit the use of worker contracts with no benefits, she's not about to complain to the labor office since she considers herself blessed to have a job at all.
"Since I was little my parents urged me to get a university degree to find good work. But I'm lucky to have any work at all. There were 30 of us in my graduating class and I'm one of the ones who is doing the best with their career," Silvia said. She did not want her last name used in case of repercussions at work.
With Spain's youth unemployment higher than 40 percent and its overall joblessness the highest in the European Union at one in five, young professionals accept any conditions as they try to start their careers.
The story is much the same in neighboring Portugal and Italy where more and more people have so-called junk jobs: temporary contracts that used to be common in tourism, farming and construction but are now used by all kinds of companies.
With the economy sluggish and the euro zone debt crisis strangling credit, businesses are keener than ever to avoid open-ended contracts with expensive severance pay.
A quarter of Spain's workforce is on temporary contracts, as is 23 percent of Portugal's, compared with a European Union average of 14 percent.
In Spain, Portugal and Italy, a rigid dual system has emerged. Middle-aged people have stable jobs with benefits. They are expensive to fire and protected by masses of legislation. Meanwhile, younger workers are stuck in a revolving door of temporary contracts that are easy to abuse.
The two-track job market is stunting economic growth, studies show. Temporary workers get trapped for longer and longer periods without benefits, which affects output and makes southern Europe less competitive.
"You cannot just leave one segment of the labor market fully untouched and not motivate people to go to the job where they fit best... you might create employment in the short term but in the end it's a dead-end road," said Ton Wilthagen, a labor expert at Tilburg University in the Netherlands.
1000 EUROS A MONTH AIN'T SO BAD AFTER ALL
The curse of the mileurista -- the Spanish-language term for a temporary worker who earns a thousand euros a month without benefits -- is not new. Young professionals in southern Europe have found a permanent position elusive for some time.
But the lost generation has wandered deeper into a maze as the euro zone debt crisis intensifies. Economic growth is slowing again and public sector jobs are disappearing as governments try to bring huge public deficits under control.
"We used to talk about mileuristas like it was a bad thing. Now it's good. A 1000-euro a month temporary contract is decent," said Jose Maria Marin, labor expert and contemporary history professor at Spain's National University of Distance Education.
In Rome, 27-year-old Federico has moved from one temporary job to another since he graduated in history in 2009. A 1000-euros-a-month is starting to look like an unobtainable dream.
"I was interviewed today for a one-year job but I didn't like it because they were offering me 500 euros a month to work 10 hours a day," said Federico, who did not want his last name used since prospective employers could search for him on the Internet.
So far he has held out for a job in his chosen field of media or marketing. He wants to move out of his parents' house but he needs a permanent job contract in order to sign a rental agreement. With more than a quarter of Italians from 15-24 years old out of work he's starting to get desperate.
"Sometimes I feel frustrated, and I start to send off lots of CVs, even to companies I don't like, just so I have more chance of finding something," he said.
The phenomenon of young people living with their parents is another thing holding back economic growth, creating a vicious cycle for job creation. If they were setting up new households they would be stimulating the housing market as well as consumer spending.
Another risk for economies with high percentages of temporary workers, notes Wilthagen, is that banks are shy of lending to people without permanent employment, further holding back consumption.
FOOT IN THE DOOR
Theoretically, a temporary contract is a foot in the door to prove yourself as a good hire.
But in southern Europe many supposedly temporary hires renew contracts year after year and do the same jobs as the permanent hires around them, just without the job security or benefits. This creates an enduring second-class job tier similar to the phenomenon of "permatemps" in the United States in the 1990s.
In Spain only 20 percent of temporary contracts led to permanent positions in 2008, one of the lowest rates in the European Union, according to a study by Ruud Muffels, a labor market expert at Tilburg University. His analysis of Eurostat data showed that mobility was better in Italy and Portugal.
Pedro Portugal, a labor market expert at Nova University in Lisbon, said conversion rates of temporary contracts to permanent ones have decreased in Portugal to under 20 percent from 50 percent in the late 1990s.
Many Portuguese companies abuse a freelance contract called the "green receipt," using it to hire full-time, in-house workers, said Joao Labrincha, an organizer of marches earlier this year against state austerity measures.
He said that "green receipt" workers often have fixed schedules like any other employee, but have no right to holidays, social security, health insurance or severance pay.
Even the government misuses the contracts.
"I've worked for the state under green receipts for more than five years. The system is rather perverse. Many of my colleagues are also under these precarious conditions, some of them have been temporary workers for the last 10 years," said a middle manager at the Portuguese Institute of Museums, who asked not to be named.
It's difficult to transition into a permanent job when no such posts are being created. In Spain, 80 percent of new job contracts signed in the last decade were temporary contracts -- businesses just aren't creating permanent positions.
"Firms tend to link temporary contracts, to chain one after the other, with the effect that very few young people get transformed from temporary to permanent. This has a very negative impact on young people starting their careers," said Anita Woelfl, economist with the OECD.
ANY JOB IS BETTER THAN NO JOB
In 2010, under pressure from the European Union to reform its labor market and make it easier for companies to hire and fire, Spain's Socialist government passed reforms meant to phase out temporary contracts and make permanent contracts cheaper for employers.
But less than a year later the government did a U-turn after the 2010 reform failed to put a dent into the country's unemployment rate, which continued to rise.
"We'd rather have people on a temporary job than without a job," said Labour Minister Valeriano Gomez when the government rolled back the reforms, introducing new rules that allow companies to extend some temporary contracts for up to three years.
Spain is becoming a country of people who are "apprentices until 33 and can't retire until 75," said union leader Ignacio Fernandez Toxo, criticizing the new rules, which included a new type of contract that gives companies more leeway to hire trainees for extensive periods with no benefits.
The extended trainee contract was designed to retrain jobless men now in their late twenties or early thirties who dropped out of school as teenagers during Spain's housing boom to work in well-paid construction jobs until the building sector collapsed in a pile of bad debt.
In Portugal, where the jobless rate is 12 percent, significantly lower than Spain's, the government has stuck to reforms that reduce and cap severance pay.
Juan Jose Dolado, an economist at Madrid's Universidad Carlos III, said Spain should have kept its eye on the long-term goal and moved the country toward a one-contract system with phased-in severance pay benefits.
"It was like crossing the river and being in the middle. They got scared in the middle, they didn't move forward to reach the other side, they went back," Dolado said.
The Socialists, expected to lose November 20 general elections after eight years in power, are now campaigning on pledges to crack down on abuse of temporary contracts.
The center-right opposition People's Party, or PP, poised to win the November vote, says it wants to revive the original labor reform and move Spain toward one type of job contract, such as the one Dolado envisions.
But analysts say the PP may also flinch when it comes to cracking down on temporary contracts because they worry the short-term effect will be to put people out of work at a time when joblessness is the top concern of Spanish voters.
Meanwhile, workers like Juan Francisco Seller, will continue to give their labor away, hoping a "real" job materializes. Seller is 27 and has a pharmaceutical degree. He's been working for free in a hospital in Valencia for a year, doing research with a laboratory team.
He has turned down paid work outside of his field, in order to keep his C.V. professional.
"I'm one of those who have patience and I'm really clear that other options don't appeal to me and I really like this field," he said. But "in the end it drives you crazy."
(Additional reporting by Catherine Hornby in Rome and Daniel Alvarenga in Lisbon; Editing by Sonya Hepinstall)
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