October 26, 2020

Why wages are so hard to grow | Economy

Why wages are so hard to grow | Economy

Few experts in Public Finance, to say nothing, believe that tax revenues will grow this year by 9.5%, as foreseen in the Budget project; and few analysts, if any, consider it possible to bring the fiscal deficit this year to 1.3% of GDP promised to Brussels. But as the paper holds everything, the finance minister believes both possible and has square income, payments and balance at convenience, committing to impossible elasticities in each tribute and a science fiction exercise truffled with small traps in the solitary that jump to the sight of everyone.

For those who conceive (or confuse) to govern with spending, it makes sense to first decide the second and then seek ways to achieve the necessary resources, and also fulfill, even if only in the remotest theory, with the grandiloquent commitment to fiscal stability. At first glance, the Government's projection is to achieve, with the most modest economic growth and employment of the last five years, the greatest increase in income in five years, despite the increases in existing and new tax rates. taxes are assigned very limited performance. Blind faith is given to a very generous increase in tax bases, very little coherent with the expected advances in inflation, based on a mobilization of wages without more indications than the increase in the minimum interprofessional salary.

The question is: why salaries are so hard to shake off extreme moderation, even though the employer-union pact has generously opened the fork of nominal increases, despite the voluptuous signals sent by the Executive with the salary decree minimum, despite the generalized discourse that it is time to correct inequalities with higher wages? Why have taxes lost the vigorous elasticity that they had in the past and can hardly advance in the proportion that GDP does? Why, in the last analysis, inflation, the best friend of finance ministers, maintains the prolonged lethargy that contributed to the crisis despite the recurrent vitamin QE from central banks?

The great crisis of this century has removed the pillars of capitalism and has changed some of its paradigms, which with the massive penetration of technology and the globalization of the economy have transformed the ways of producing, distributing and consuming. The best example of the depth of the great recession and the metamorphosis operated in the global economy is the hetorodox path followed by the central banks to return the water to its natural course. The risk of reducing the wealth generated by inflation has gone to the fear of destruction with which deflation threatens, which has led the governors to flood the money markets at zero cost and now fear a new recession to withdraw it. The battle against deflation is not over, and the deep roots of the phenomenon are the flattening of wages, tax revenues and the resistance of public and private debt to be reduced.

The very low expectations of inflation, anchored in powerful structural reasons, are behind the limited increases in wages in mature economies such as Spain. Against inflation, at least five riders actively conspire: the full opening of economies to world trade (Trump's tariff war is a temporary anecdote), with large emerging countries of giant labor reserve armies exporting deflation; financial and technological globalization, which cheapens productive processes to an unimaginable extent; the revision of traditional energy models, which leads to fossil sources such as oil near irrelevance; the expansion of the collaborative economy in almost all services, no matter how intensive an economy is in them, as in the case of Spain; and the unstoppable demographic aging in Western economies, which limits demand and relaxes the pressure on prices.

In Spain, such modest expectations of inflation have been self-sustaining in recent years with negative rates of advance in prices (2014, 2015 and 2016), which have even shown nagative differentials with inflation in the large mature economies of the European Union. , as is the case of Germany and France. These expectations have been driven by two linked cyclical phenomena, such as the persistent fall of consumption due to the crisis, in which disposable income fell sharply and conditioned the mood of demand even in those who did not lose employment and income, and the strong Unemployment pressure.
Different labor market

The Bank of Spain admits in a recent report that the pressure of unemployment is more intense than in the rest of Europe to condition wage moderation; nevertheless, it must be admitted that this phenomenon is the son of the last crisis, because in the previous ones it never happened, and even in the first years of this last double recession nominal wages advanced generously while destroying employment at great speed. This double pressure of unemployment on wages is based on previously unknown phenomena, such as the existence of a labor force of immigrants with higher unemployment rates than native ones (20.6% against 15%) and higher activity rates. (71% vs. 58.7%) and willing to accept lower compensation.

They also put pressure on the decline of wage incomes due to the high presence of involuntary part-time employment, which is increasingly widespread among young people, as well as the growing fear of the loss of existing employment due to the impossibility of relieving it for one of similar remuneration, and also the growing union passivity.

The survey of living and working conditions shows that slightly more than half of those hired on a part-time basis (54%) do so in such conditions by imposition. It also finds that almost one out of every four workers considers it possible to lose their jobs, with more concern among young people, temporary workers and part-time workers, and they fear not finding a job with similar income, especially those with more than 50 years. .

It is not negligible either the pressure that may have exerted the relative decline in unemployment benefit after a very strong advance in the years 2009 and 2010, as well as the legal and practical reduction of compensation for dismissal, which is in the middle levels lowest of the last decade (less than 8,000 euros for individual or collective termination compared to 11,400 in 2013).

All in all, salaries have advanced in Spain below 1% per year in the four-year period from 2013 to 2016, and only slightly above that figure afterwards. In 2018, they closed with an advance of 1.7%, driven by an increase in the SMI of 8%, and despite the fact that the wage agreement marks superior references, which can range between 2% and 3% if a part depends on the results of the companies; in the large corporations, almost all of them with their own agreements, the increases were limited to 1.1%.

What is expected for 2019 with salaries, inflation and the impossible bases of taxes. The macroeconomic picture of the Government marks advances of 2.1% in the compensation of salaried employees, which could be possible given that the Minimum Interprofessional Salary has increased by 22.3% since January 1. This table does not include an inflation forecast, and only sets an estimated GDP deflator of 1.7%, while the consensus of analysts in Spain is more conservative and believes that the CPI will advance 1.5% this year, and a 1.2% if the advance is focused on the underlying elements of the index.

With such official estimates, along with the most modest employment advance in recent years (1.8%, or about 330,000 new jobs, as President Sánchez admitted in Davos), and an increase of only 1.7% in The demand for final consumption, we must blindly rely on very generous elasticities of taxes to achieve budgeted revenues: nothing less than 9.5% in aggregate, 4.9% in personal income tax, 11.7% in the Value Added Tax and 7.5% in the contributions of companies and workers to the Social Security.
Precisely the absence of inflation and expectations of generating it slows down salaries, also pushed by a wage devaluation not completed, which leads to elasticiaddes lower than 1 on the evolution of GDP in taxes whose impossible basis is the income from work, as reveals in a recent report the Independent Authority of Fiscal Responsibility (AIReF). This body also points to the growing orientation of the economy towards exports as a new agent that reduces VAT elasticity, and the persistent gap between tax bases and accounting in companies to reduce the same ratio in companies. Only the strong irruption of the telematic payment forms even in the microconsumption (especially bars) can recompose a part of VAT revenues, which mark years of successive records, despite being the most coveted tax figure for tax avoidance.


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