Partial work and unemployment undermine wage growth

Partial work and unemployment undermine wage growth

The high proportion of workers to youinvoluntary partial unemployment and discouraged unemployed are exerting "some downward pressure" on wages, according to the Bank of Spain concludes in its article 'The wage moderation in Spain and in the UEM'.

The institution that governs Pablo Hernández de Cos analyzes in this publication the factors that explain the evolution of salaries, using up to five different models.

The base model, which takes into account the unemployment rate, productivity and inflation expectations, reflects that an increase of one point in the unemployment rate causes a reduction in wage growth close to three tenths and an increase of one point in productivity, it leads to a seven-tenths wage increase, while low inflation expectations translate into a wage growth close to eight tenths.

However, the Bank of Spain considers that there are other factors, such as involuntary bias or the group of discouraged, which have also played a relevant role in explaining the "reduced growth" experienced by wages in 2016 and the first few quarters. of 2017.

According to the agency, in the last fifteen years, the rate of involuntary part-time workers (those who work less than 30 hours per week but who would be willing to work more hours) "has increased rapidly in Spain", to be around 8% of the active population from a level close to 2%.

"The sharp growth observed since 2008 could indicate that, during the financial crisis, at least a significant number of companies faced the fall in activity, replacing a relevant proportion of full-time workers with part-time workers with the objective of limiting their labor costs, "says the Bank of Spain.

Discouraged unemployed

As for the discouraged unemployed, understood as those who they do not actively seek employment, but would be willing to work immediately if they had a job offer, the Bank of Spain notes that the percentage of discouraged unemployed rose during the crisis and began to slow down in 2013.

After analyzing different models and factors, the Bank of Spain concludes that the unemployment rate was the main factor that, gradually, limited the growth of salaries between 2008 and 2012. As of 2014, in a context of progressive economic recovery, the unemployment rate continued to have a negative effect on wages, but in a decreasing manner.

At the same time, the "particularly low" inflation expectations in the post-recovery quarters also explain the low wage growth. Productivity, on the other hand, contributed positively to the wage evolution in the years of the crisis, partially offsetting the impact of high unemployment.

Also, there are two additional variables that, according to the Bank of Spain, explain the moderation of salaries between 2000 and 2007 and between 2010 and 2012. The first, corresponding to the first period, would be related to the strong entry of foreigners in Spain and its lower salary bargaining power. The second refers to the labor reforms approved between 2010 and 2012, which, together with collective bargaining agreements signed between employers and unions, "would have favored a degree of greater wage moderation".

With respect to the most recent period, between 2016 and the first quarters of 2017, the Bank of Spain attributes the moderation of salaries to low inflation expectations, but also to factors such as involuntary bias and the discouraged unemployed.


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