November 27, 2020

Contraindications to raising the minimum wage


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The Interprofessional Minimum Wage has risen in Spain almost 30% in just two years, going from 733 euros in 2018 to 950 euros in 2020. The Budgets for next year at the moment foresee its freezing, but the Minister of Labor, Yolanda Diaz, has on the table a new raise for put it at 1,000 euros next year. The objectives are laudable: we must protect the weakest and most vulnerable groups by guaranteeing them a higher salary, we must reduce the differences between those who earn more and less … However, experience shows that abrupt increases, such as those that have been carried out in Spain in recent years, far from achieving the desired ends can be counterproductive.

Last Friday the report of the IMF on Spain included a study on the impact of the 8% increase in the Minimum Interprofessional Wage (SMI) in 2017, still under the Government of Mariano Rajoy. According to the agency, this rise increased the probability of losing a job, especially in workers to whom it was applied and who were over 37 years old, in addition to young people from communities with lower wages such as the Canary Islands or Extremadura. The least we can think of is that if this is what happened with the 7% rise in the minimum wage, the 22% hike that was applied in 2020 will have driven many more workers out of the labor market into unemployment or into the underground economy, although the pandemic has probably blurred the situation. Let’s hope that Minister Yolanda Díaz and the technicians of her ministry read the IMF report carefully and take good note to at least put aside their intention to raise the SMI again next year.

But these assertions are not the only darts the IMF throws at the economic policy of the coalition government. The Fund considers that the labor reform approved by the Government of Rajoy and that Sánchez and his partners want to repeal was positive because not only has it created jobs, but it has also reduced inequality. And he advocates for the single contract that a group of 100 economists recommended to Rodríguez Zapatero more than a decade ago, back in 2009, and for the much-used Austrian backpack, which would make a market much more flexible and help end the duality of the labor market with highly protected permanent workers and temporary workers with little compensation. Y Nor is it the slightest grace to the international body that the Government allocates more than 3,000 million to raise public salaries and pensions. An amendment to almost the entire budget.

The numbers. The minimum wage in Spain has risen by about 30% in just two years and now reaches 950 euros per month. According to the IMF, the 8% rise approved by the PP Government in 2017 caused that “employees with a minimum wage over 37 years old and with a seniority of at least nine months, but less than six years, had 17 percentage points more than probability of losing their jobs due to the increase in the minimum wage than workers who earn a little more than the minimum wage were not affected.

Yolanda Gómez RojoYolanda Gómez RojoDeputy directorYolanda Gómez Rojo

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