Spain | Lights and shadows of the minimum wage increase

Summary

Increases in the national minimum wage (SMI) are excellent news in economies in which productivity is growing and employment rates are high. However, there needs to be an awareness of the costs and benefits of the measure, which regrettably are still not being evaluated with the necessary detail and rigor.

Key points

• Key points:
• In Spain, productivity per employee has declined since 2019 and GDP per hour worked had not reached the pre-pandemic level by the end of last year. Moreover, the employment rate is the fourth lowest in the EU while the unemployment rate is the highest.
• The benefits of the rise in the minimum wage approved in 2023 (8%) are clear. In an inflationary context like the one currently being experienced, employees who retain their job and continue working the same number of hours will maintain their purchasing power.
• In many provinces and sectors, the minimum wage already exceeds 60% of the average gross wage. The evidence indicates that in the regions where the minimum wage is higher in relation to the average wage, the jobless rate is higher.
• The increase in the minimum wage (which potentially affects 12.6% of workers) could directly contribute with a 1% increase in wage inflation, which ramps up pressure on price growth and increases the likelihood of second-round effects and of inflation becoming entrenched.

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