Involuntary partiality and discouraged unemployed pull down wages

Involuntary partiality and discouraged unemployed pull down wages


The Bank of Spain considers that the high proportion of involuntary part-time workers and discouraged unemployed has played an important role in explaining the low wage growth in Spain in the most recent period.

In its analytical article "The wage moderation in Spain and the EMU" published today, the entity explains that the wage moderation of the current recovery period started in 2014 is also due to low inflation expectations.

According to the Bank of Spain, during the recession, wages fell as a result of the marked increase in the unemployment rate.

The two labor reforms and the collective bargaining agreements that favored wage moderation contributed to the containment of wages at the beginning of the recovery, together with particularly low inflation expectations.

However, the reduction in the unemployment rate after 2013 was not accompanied by an increase in the rate of wage growth, which has led to consider involuntary part-time work and the rate of discouraged individuals as relevant factors. They do not actively seek employment but are willing to work.

The Bank of Spain notes that in the last fifteen years the involuntary bias rate has grown to 8% of the active population from a level close to 2%.

The growth was more marked from 2008, which indicates that during the crisis a significant number of companies faced the fall of activity replacing part of the full-time workers by part-time employees to limit their labor costs.

The percentage of discouraged workers also increased during the crisis and slowed down from 2013.

According to the calculations of the entity, each increase in one point of the unemployment rate is associated with a reduction close to 0.3 points in wages.

This impact is compensated by productivity, since each point of increase of this variable would correspond to a wage growth of 0.7 points.

Expectations of price increases also have a positive effect, since each point of rise in inflation translates into an advance of 0.8 points of wages.

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