May 30, 2020

Wages will drop as much as 10% for new hires, report says



Wages could fall between 5 and 10% for new hires that will be reactivated from September, according to the study carried out by the consulting firm Ceinsa, while total wages will be adjusted up to 5% due to the effect of unemployment , especially among management positions.

This is the intermediate forecast made by Ceinsa taking as a reference the Bank of Spain’s macroeconomic forecasts, in which GDP falls 9.2% in 2020 and the unemployment rate rises to 19%, with little recovery in activity in the third trimester and almost complete normalization in the fourth.

Between June and August, the consultancy predicts that market wages will remain because new hires will not have much effect, although it foresees adjustments in sectors such as retail and tourism of between 8 and 12%, more for layoffs than for salary cuts.

Starting in the second half of 2021, wages will recover clearly, although they will not return to pre-crisis levels until 2023.

In its study, Ceinsa also makes forecasts for the other two scenarios foreseen by the Bank of Spain, one more optimistic and the other more pessimistic.

In the most pessimistic scenario, with a fall in GDP of 13.6% and unemployment of 21.7% in 2020, the salary adjustment between June and August could be between 10% and 15% for low-skilled jobs, while starting in September without economic activity still normalized, the remuneration offered for new hires would drop between 10% and 20%, depending on the positions.

In general, total salaries will be adjusted, taking into account that there will be few hiring, between 8% and 13% for managerial positions and between 2% and 4% in non-managerial positions.

For the most optimistic forecasts, with a fall in GDP of 6.6% in 2020 and an unemployment rate of 18.3%, Ceinsa forecasts a decrease in remuneration in low-skilled jobs in the tourism sector between June and August of between a 3% and 5%.

Starting in September, the remuneration offered for new hires would experience a decrease of between 3% and 5%.

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