Spain: Lowest earners hardest hit by salary devaluation

Spain’s lowest earners have been badly affected by the deterioration in their income since the crisis that began in 2008, with salaries being devalued because of rising inflation. A report by trade union CCOO says this has the effect of cutting purchasing power, increasing income inequality and fuelling the collapse of economic demand.

Background

The Confederation of Workers’ Commissions (CCOO) published its Graphic analysis of the salary devaluation in Spain (in Spanish, 986 KB PDF) in July 2015. The report analyses data for 2009–2013 that has been drawn from several statistical sources but mainly from the Spanish Labour Force Survey (EPA).

Key findings

The report shows that while on paper the outcomes of collective agreements suggest the purchasing power of workers has changed little, structural changes in Spain’s labour market have, in reality, brought about significant changes for many workers. It also argues that certain groups, particularly the lowest-paid and most vulnerable, have been hit hardest.

Loss of purchasing power

Using data from the National Institute of Statistics (INE) and from the Ministry of Employment, the report estimates that the average salary increase agreed in collective agreements between 2009 and 2014 was 9.3%. Inflation (average annual CPI) for that period was 8.5%. Therefore, the agreed salary increases resulted in an increase of 0.8% in purchasing power. As a result, looking at collective bargaining data, the report concludes that collective agreements were able to maintain the purchasing power of salaries.

However, actual salary data collected by the Spanish Labour Force Survey show salaries increased by only 3% between 2009 and 2013. Taking into account accumulated inflation over the period, this low increase resulted in a purchasing power loss of 5.8%. Some of the main causes of this trend is:

  • the replacement of open-ended contracts with fixed-term contracts;
  • the replacement of full-time work with part-time work;
  • higher employee turnover (meaning fewer seniority supplements and lower salaries for newly hired employees).

Part-time workers lose out 

Although the increase given above is 3% in terms of overall average, there are significant differences when the figures are broken down by full-time and part-time work. Full-time workers’ salaries increased by 6.6% while part-time workers’ salaries declined by 1.4% (in nominal terms). Moreover, and taking into account these data and inflation trends, it can be concluded that full-time workers lost 2.2% of their purchasing power compared to 10.2% for part-time workers  five times more than for  full-time workers.

Other groups affected

FUNCAS, the Spanish Savings Banks Foundation, published a report analysing the evolution of the salaries of 100,000 workers between 2008 and 2013, based on the ‘continuous sample of working lives’ from the Social Security Institute. The report concludes that the salaries of stable workers (those who had not changed their job between 2008 and 2013) decreased by 1.6% over the period, whereas the salaries of unstable workers (those who changed jobs and maybe also experienced periods of unemployment) decreased by 17% (in nominal terms). The conclusion is that stable workers lost 10.4% of their purchasing power between 2008 and 2013, compared to 25.8% for unstable workers.

Another report, published by the Foundation of Studies of Applied Economy (FEDEA) and also based on data from the ‘continuous sample of working lives’, focuses on the effects of salary devaluation on the wages of newly hired employees. It concludes that, in terms of median salary, an employee with an open-ended contract in 2007 who then changed his job would have earned 34% less in 2013 with an open-ended contract and 65% less with a fixed-term contract.

Lowest paid most vulnerable

An examination of the evolution of salaries per decile, as published by the Spanish Labour Force Survey (EPA), shows that salary deterioration has particularly affected workers on the lowest salaries. More precisely, data show that the salaries of the lowest 10% of low earners (Decile 1) decreased by 16.4% between 2009 and 2013 (in nominal terms); while the salaries of the next 10% of low earners (Decile 2) decreased by 7.3%; and the salaries of workers in Decile 3 by 1.5%.

It can therefore be estimated that workers in Decile 3 lost 10.3% of their purchasing power in 2009–2013, workers in Decile 2 lost 16.1% while workers in Decile 1 lost 25.2%.

Decrease in unit labour costs

In terms of business competitiveness, the key variable is the unit labour cost, which takes into account both salary and productivity data. Looking at the National Accounts (published by the INE), labour costs increased by 3.1% between 2009 and 2014 but, given that productivity increased by 9.6%, the result is that unit labour costs decreased by 6.5%. Moreover, if inflation is taken into account, it is possible to conclude that real unit labour costs have diminished by 15.4% over the 2009–2014 period.

Uneven income distribution 

According to an article by the economist Vicente Salas Fumá of the University of Zaragoza, employees’ salaries decreased between 2008 and 2013 while companies’ gross operating profits increased. More precisely, his analysis of Spanish companies’ profit and loss accounts, based on data from INE, shows that salaries decreased by €54,500 million between 2008 and 2013 (from €337,916 million to €283,473 million), and gross operating profits increased by €31,000 million (from €183,107,000 to €214,208,000). The  CCOO report concludes that this unfair distribution of income has had a significant impact on macroeconomic imbalance, with a sharp decrease in domestic demand. Domestic demand in Spain decreased by 16% between 2007 and 2013, a period of dramatic economic recession.

Increase in number of ‘working poor’

Spanish salary deterioration has affected different groups of employees in different ways. Salary inequality can be measured by comparing the salaries of those workers who earn the highest salaries (Decile 10) with those earning the lowest (Decile 1). Data show that salary inequality has increased during the crisis period: in 2007, workers in Decile 10 earned seven times more than workers in Decile 1, whereas in 2013, workers in Decile 10 earned 11 times more.

The crisis has reduced further the salaries of the workers who were already earning low wages, and this has increased the number of working people whose incomes fall below the poverty line. The report states that in Spain there are currently around 4.5 million people who earn less than €1,000 (per payment, gross wages, consisting of 14 payments over 12 months, including extra payments in June and December).

Conclusions

The report points to the contradiction between the salary increases established by collective agreements and the average real salary decreases reflected in other official statistics. It also argues that the factors behind salary devaluation are mainly employment destruction, labour precariousness and the recently approved Labour Reforms. In short, the report concludes that it is the deterioration of the labour market that is causing salary devaluation, and not the terms of collective agreements.

In general terms, salary deterioration has been a core strategy in the adjustment plan of the Spanish economy, used as a tool for regaining lost competitiveness. The authors of the CCOO report maintain that this strategy is misguided. To reactivate consumer demand and promote economic recovery, the purchasing power of families must be increased. Therefore, the main thrust of trade unions in their fight against labour market precariousness is to achieve higher statutory minimum wages.

Documents: 
Datei grafico.docx
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