Minimum wage and Employment in Spain

Minimum wage and Employment in Spain

The Council of Ministers held yesterday in Barcelona approved the increase in the minimum wage (SMI) by 22.3%, to 900 euros, for next year, the largest increase in four decades. The measure, which according to the Government will benefit about 2.5 million workers, aims to "prevent poverty at work, raise the standard of living of the lowest-paid people and encourage more dynamic wage growth." In addition, the Executive believes that it will contribute to the maintenance of the coffers of Social Security.

Applauded by the unions, the measure does not arouse, however, so much enthusiasm among entrepreneurs and some leading agencies with the Bank of Spain at the helm. The financial supervisor estimates that such a sharp increase in these payments can put 150,000 jobs at risk, while the European Commission discounts it to between 70,000 and 80,000. The Independent Authority of Fiscal Responsibility (AIReF) is the least pessimistic in its calculations, foreseeing a negative impact on the employment of 40,000 people.

Young people and immigrants are, potentially, the groups to which the measure can most harm. It is, in both cases, the least productive. And, as the employer (CEOE) argues, companies can decide that in the case of those workers who provide income below the labor cost they generate, it is best to rescind their contracts. The companies will not only have to increase salaries but also the Social Security contributions derived from said wage increase.

Faced with this current pessimism, the Government argues that there is no empirical evidence to argue that sudden increases in the SMI have had negative effects on employment. However, the Secretary of State for Social Security, Octavio Granado, has acknowledged that it could have effects on the employment of sectors such as commerce or hospitality.

Along with the increase of the SMI, the Government also approved the decree-law to increase the salary of public employees next year. The increase, which derives from a pact reached by the Executive of Mariano Rajoy with the unions, establishes a rise of 2.25% for all public employees, to which we must add a variable percentage that can reach 0.25% , linked to the evolution of GDP from 2.5%. Public employees will also have another 0.25% of additional funds whose distribution, in this case, will depend on the negotiation of each administration with their union organizations. In the case of variable remuneration of 0.25% for GDP growth equal to or greater than 2.5%, the percentage of variable remuneration will decrease proportionally to the reduction that occurs on said 2.5%. Taking into account the Government's forecasts, which estimate a growth of 2.3% for 2019, everything points to the salary of officials would grow 2.4% next year. To this figure, depending on the administration, 0.25% would be added.


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