Spain | Social contributions and employment

For years now, the structural problems of the Spanish economy have been clearly identified. They are challenges that Spain must overcome in order to converge with the most advanced societies through a holistic approach and coordinated actions that are consistent with each other.

Key points

• Key points:
• RDL 2/2023, the last phase of the reform of the public pension system, was recently ratified in Congress. Given that sustainability, sufficiency and equity are among the challenges facing our pension system, the reform must be assessed both in terms of its ability to ensure sustainability and its contribution to improving (or at least not aggravating) other major challenges facing our economy.
• The increases in social security contributions approved in the RDL are not likely to be sufficient to meet the increase in pension expenditure and will also have an economic cost in terms of investment, job creation and growth.
• In a forthcoming study relating to the baseline growth scenario, we suggest that the increase in non-contributory contributions required to raise government revenue by one point of GDP would lead to 1% fewer hours worked and full-time equivalent employment in the long run. GDP would also be lower by 0.6%, while total labor cost would increase by 0.6% and take-home pay, after social contributions, would be 2% lower.
• The sustainability of pensions in the coming decades will require attracting millions of migrant workers, a process that will certainly be much easier if our economy is able to solve the remaining structural problems and successfully address future challenges.

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