Spain: Impact of crisis on labour costs and employment levels in companies

An analysis of the 2014 Survey on Salary Formation, published by the Bank of Spain, examines the views of Spanish companies regarding the economic crisis, how they adjusted labour costs and how labour market reforms introduced from 2010 aimed to increase companies’ flexibility.

Introduction

In October 2015, the Bank of Spain published an analysis of the results of the 2014 Survey on Salary Formation (385 KB PDF) in Spanish companies. The article in the bank's monthly publication, Economic Bulletin, analysed the results of the third edition of the survey carried out in Spain between September and December 2014 by the Wage Dynamics Network (WDN), a research network of economists from the European Central Bank and the National Central Banks of the EU Member States.

The issues studied are economic upheaval, employment adjustments and recent changes in the labour legal framework. The survey was conducted with an initial sample of 3,049 Spanish companies (stratified random sample, by economic activity and size). The final sample comprised 1,975 companies (response rate of 64.8%). The survey was carried out in 26 countries, and the questions in all of them were homogenous, making data comparable.

Main findings

Economic upheaval

Results from the survey showed that 70.7% of the surveyed Spanish companies experienced a drop in demand levels in 2010–2013 (30.1% experiencing a strong drop; 40.6% a moderate drop), particularly at national level – 65% of the surveyed companies declared a decrease in domestic demand, whereas only 30.2% experienced a drop in external demand. Moreover, 44.1% of the companies said that their access to external financing had become more difficult over those years, and almost 60% added that their clients were less able to pay their invoices. In addition to this, 63.4% of the companies experienced increased competition in internal markets, with 53.7% experiencing this in external markets. As a consequence, 46.1% of the companies reduced the prices of their products in internal markets, and 31.2% did so in external markets. 

Spanish companies also said they had experienced difficulties in adapting their costs to the worsened economic situation. More precisely, 52.1% of the Spanish companies declared that their total costs increased during 2010–2013, compared with 30.2% of the companies that said their costs decreased (particularly labour costs, according to 28.6% of the companies).

Adjustments in labour costs and employment

In general terms, the economic upheaval forced companies to make adjustments in labour costs and employment levels.

The main measure applied by Spanish companies in 2010–2013 to adjust labour costs was employment reduction. More precisely, 47% of the companies reduced the number of temporary workers (18.3% experienced a strong reduction; 28.7% a moderate reduction), whereas 34.2% reduced the number of workers on indefinite (permanent) contracts (5.7% experienced a strong reduction; 28.5% a moderate reduction). Data vary depending on the intensity of the fall in demand experienced by the company. Companies that experienced a moderate decrease in demand were more likely to shed temporary jobs (62%) or to reduce variable salaries (56%), whereas companies which experienced a strong reduction in demand levels were more likely to reduce permanent employment (52%).

Table 1: Evolution of labour costs 2010–2013 (%)

 

Strong decrease

Moderate decrease

No changes

Moderate increase

Strong increase

TOTAL

Temporary workers

18.3

28.7

30.8

19.0

3.2

100

Permanent workers

5.7

28.5

28.4

33.5

4.0

100

Hours worked per employee

3.2

11.5

65.2

19.7

0.5

100

Variable components of salary

3.1

35.2

44.5

16.6

0.6

100

Base salary

1.7

4.6

41.4

51.2

1.1

100

Source: Analysis of the results of the 2014 Survey on Salary Formation, Bank of Spain

However, the variable components of salaries were also a significant adjustment tool for companies in 2010–2013 (38.3% of the companies reduced this part of their salaries), although it must be noted that the variable part is only a small part of the total salary (4.2% of the total labour costs on average, among the surveyed companies). In contrast, reductions in the base salary were infrequent (only 6.3% reduced the base salaries of their employees), whereas 41.4% of the companies kept them at the same levels and 51.2% increased them moderately. Finally, 14.7% of the companies declared that they had cut the number of hours worked as a way of reducing labour costs.

With regard to salary adjustments, the survey showed some data concerning salary freezes and reductions. Almost 20% of the companies applied a salary freeze between 2011 and 2013, whereas only 3.3% of the companies said they reduced the salaries of their employees (in 2013), due probably – according to the report – to laws preventing salary cuts.

Table 2: Incidence of salary freeze and salary reduction

% of companies applying

2010

2011

2012

2013

Salary freeze

16.2

19.9

19.1

17.9

Salary reduction

1.6

1.5

3.2

3.3

Source: Analysis of the results of the 2014 Survey on Salary Formation, Bank of Spain

More flexibility for employers

Generally speaking, it can be said that reforms introduced in Spain from 2010 aimed to increase companies’ flexibility and decentralise collective bargaining to make it easier for employers to use adjustment strategies such as modifying salaries and working conditions. Against this background, the results of the survey showed that companies found it easier to apply adjustment measures in 2013 than in 2010. For instance, 27% of the companies considered that it was easier to reduce existing workers’ salaries in 2013 than in 2010, and 34% said that it was easier to reduce the salaries of newly hired workers. The report concluded that there could be many factors behind these changes, such as the legal changes approved during that period, or the impact of the crisis on companies and workers’ attitudes.

Finally, the survey analysed the main obstacles which deter employers from signing open-ended contracts, as perceived by the surveyed companies. Results showed that 80% of these companies were of the opinion that economic instability hampered permanent hiring. In addition, 63% of the companies said that high labour costs were an obstacle to signing open-ended contracts, and 62% of them considered high severance payments to be a deterrent.

Conclusions

The 2014 Survey on Salary Formation, published in 2015, presents the views of Spanish companies regarding the difficult economic period in Spain between 2010 and 2013. The survey confirms that reducing the number of temporary workers was the adjustment measure favoured by most companies in Spain, followed by cuts in the variable part of salaries.

The surveyed companies recognised that legal changes introduced from 2010 made it easier to introduce more flexible adjustment measures for the modification of salaries and working conditions. One of the most significant measures introduced by the Spanish Government is the 2012 Labour Market Reform (approved in February 2012 under Royal Decree-Law 3/2012), which increased salary and organisational flexibility, leaving more room for negotiation at company level and for avoiding dismissals.

Documents: 
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