Economic crisis slows wage growth

A recent report by the 1st May Foundation shows that the rate of increase in average wages in Spain has experienced a remarkable slowdown in the last two years as a result of the current economic crisis. The report also shows that the wage increases experienced in the period from 2005 to 2008 did not benefit members of the Spanish labour force equally. Wage differences increased between 2005 and 2008, although the wage differential between men and women dropped slightly.

Background

A new report (in Spanish, 495Kb PDF) by the 1st May Foundation (Fundación 1° de Mayo) of the Spanish Trade Union Confederation of Workers’ Commissions (CCOO), analyses the evolution of wages in Spain between 2005 and 2010. The report examines a number of aspects including:

  • wage increases negotiated through collective agreements;
  • wage differentials across various categories and especially taking into account gender considerations.

Results

The main results of this analysis are summarised below.

Wage increases

Collectively agreed wages in Spain increased by 3.3% on average in the period 2005–2008, whereas in 2009 the increase was relatively moderate (2.4%). Meanwhile the agreed wage increase up to April 2010 was 1.3% (Table 1). These figures show that wage negotiations in Spain are profoundly linked to both the containment of inflation and the general evolution of the economy.

Table 1: Agreed wage increases, by sector, 2005–2010 (%)
  Agriculture Manufacturing Construction Services Total
2005 3.7 3.0 2.9 3.2 3.2
2006 3.9 3.3 3.0 3.3 3.3
2007 4.0 3.1 3.6 3.0 3.1
2008 3.9 3.4 3.6 3.6 3.6
2009 2.1 2.4 3.5 2.3 2.4
2010* 1.5 1.0 0.9 1.4 1.3

Note: * Data for collective agreements signed up to April 2010.

Source: Aguilera, 2010

Not all employees benefited equally from the agreed wage increases. Taking 2009 as a reference, about 40% of Spanish workers covered by collective agreements (around 3.9 million) received a wage increase of less than 2% and only 23% (about 2.2 million workers) received one of more than 3%.

Construction is the sector most heavily affected by the general economic situation. This means it enjoys the highest growth in wages during periods of expansion but has the lowest growth rates during the period of recession. Nevertheless, wages in the sector grew more than in any other sector in 2009.

Wage differences

Wage differences within the Spanish labour force increased between 2005 and 2008 (latest available year), benefiting those workers in the highest salary brackets. According to data from the Annual Survey of Wage Structure published by the National Institute of Statistics (INE), 10% of Spanish full-time workers received a wage more than five times higher than the minimum legal wage in 2005; by 2008 this percentage had increased to 20%. However, up to 47% of Spanish full-time workers earned a salary lower than three times the minimum wage in 2008 compared to 67% in 2005. These trends are better explained by the damage to the employment process experienced by the Spanish economy from mid 2008 onwards, which was concentrated in temporary jobs in the lowest salary brackets.

Women suffer substantial wage discrimination compared with their male counterparts. In 2008, women earned on average 22% less than men (€18,910 compared to €24,203); the wage gap for 2005 was 5.5 percentage points higher at 27.5% (Table 2). The pay gap between men and women extends to all occupations, but is particularly widespread in managerial positions (24.6%), non-skilled service jobs (28%) and some branches of manufacturing. The difference is larger for employees with a permanent contract (24%) than for temporary employees (11.7%). These wage differentials can be partly explained by the fact that women are predominantly employed in labour-intensive sectors and occupations usually linked to lower wage levels (such as retail, domestic and personal services, and health and social services).

Table 2: Average annual wage per worker, by type of contract and gender, 2005–2008
    Average annual wage per worker (€)
    Total Permanent workers Temporary workers
Total 2005 18,676.92 21,501.13 14,124.31
2008 21,883.42 23,544.24 16,204.29
Men 2005 21,093.92 24,773.82 15,333.82
2008 24,203.33 26,329.00 17,062.62
Women 2005 15,294.83 17,043.85 12,355.97
2008 18,910.62 20,008.48 15,069.12
Difference between men and women 2005 -27.5% -31.2% -19.4%
2008 -21.9% -24.0% -11.7%

Source: Aguilera, 2010

Conclusions

The report emphasises the slowdown in wage increases, which were quite generous in the year preceding the crisis but nearly ground to a halt once it started. The report also warns that the positive trends before 2008 did not benefit all members of the Spanish workforce equally. On the contrary, some groups (especially men and those in the highest wage percentiles) have benefited disproportionally from wage increases. Finally, the current economic crisis has had a profound effect on wage distribution, since the decline in employment experienced by the Spanish economy since mid 2008 onwards is concentrated in temporary jobs in the lowest wage brackets.

Reference

Aguilera, J.C., Los salarios en España 2005/2010: moderación salarial, pérdida de peso en la distribución de la renta y desigualdades salariales, Estudios de la Fundación 36, Madrid, Fundación 1º de Mayo, 2010, available online at http://www.1mayo.ccoo.es/nova/files/1018/Estudio36.pdf.

Iñigo Isusi, Ikei

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