The new Spanish minimum wage

Raising wage floors is one way to reduce inequality and stimulate recovery in Europe. A big uplift in the Spanish minimum wage this year provides a test bed.

The Socialist-led Spanish government which emerged last summer approved by the end of 2018 a hike in the statutory minimum wage. This was agreed with the left-wing Podemos party, as part of an attempt to secure the parliamentary support needed for the passing of the proposed 2019 budget—although failure to do so issued in the April election.

The new minimum wage came into force on January 1st, rising from 14 monthly payments of €735.90 per year to €900 for those in full-time employment. This entailed an increase of 22 per cent—the highest in more than four decades in Spain and the most  significant among EU countries in 2019.

Loss of purchasing power
The elevation was framed as a tool to counterbalance the loss of purchasing power among those employees who had suffered the worst consequences of the economic crisis. Although there had been prior increases in 2017 and 2018, the rise implemented in 2019 constituted a more determined policy approach.

The crisis had a strong and protracted impact on the Spanish labour market. Real wages had progressed much less among those employees with the lowest wages during the boom and after the crisis they were worst hit—especially the lowest quintile, whose wages continued to decline until at least 2016 (Figure 1).









Figure 1: Evolution of average real wages by wage quintiles (index: 2004=100)
Spanish minimum wage
Source: EU-SILC

Is the Spanish statutory minimum wage high? It does not seem so even at its new level (Table 1). Spain ranks eighth among the 22 EU countries which implement a statutory minimum wage and would occupy a more intermediate position if those countries which do not were included—since they have relatively high wage floors negotiated by social partners.

Table 1: Statutory minimum wage across EU countries (prorated over 12 monthly payments)
€ (2019) Percentage of the average wage (2017)
Luxembourg 2,071 42.7
Ireland 1,656 38.3
Netherlands 1,616 39.3
Belgium 1,594 39.8
Germany 1,557 42.5
France 1,521 49.9
UK 1,453 44.2
Spain 1,050 33.9
Slovenia 887 48.0
Malta 758 44.4
Portugal 700 43.5
Greece 684 32.8
Lithuania 555 43.4
Estonia 540 35.2
Poland 523 43.6
Slovakia 520 38.2
Czechia 519 35.4
Croatia 506 41.5
Hungary 464 40.2
Romania 446 43.6
Latvia 430 38.7
Bulgaria 286 43.4
Sources: Eurostat and OECD

Spain is at the bottom in terms of the proportion the minimum wage represents of the average wage. Apart from the fact that its minimum wage level is not high, this is explained by Spain being one of the EU countries where a smaller proportion of employees receive wages around the level of the statutory minimum wage, due to higher collectively-agreed minima in various sectors. Therefore, while the recent increase brings Spain more in line with other advanced EU economies, it does not directly affect large swaths of the workforce.

Estimated impact
The impact of the new minimum wage on the wages of the different types of Spanish workers can only be estimated for now using prospective analysis, as done here using the latest available pan-European wage microdata (the 2017 wave of the EU-SILC survey). These show that in 2016 only 7 per cent of employees earned wages falling between the statutory minimum wages of 2018 and 2019. Since Spain had almost 16 million employees, this means approximately 1.13 million would have been directly affected by the 2019 rise (the Independent Authority for Fiscal Responsibility, using recent national statistical sources, estimated that 8 per cent of employees, around 1,2 million, would be affected).

The new Spanish minimum wage
by Carlos Vacas-Soriano on 16th July 2019

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