Discrimination in salary levels
There is increasing flexibility in salary levels in Spain. However, levels are still mainly determined by institutional factors, and empirical evidence hints at gender discrimination. The labour market also appears to be segmented by type of contract, with temporary workers reporting lower salaries.
The Spanish Ministry of Labour and Social Affairs published an article in June 2004 on how salaries are set in Spain (Formación de salarios en la economía española - 2Mb pdf; in Spanish). The paper seeks to identify the factors that play a role in determining salaries, and to assess whether pay differences by gender and type of contract are subject to discrimination.
Preliminary data are given on salary trends and macro-economic variables in Spain. The data indicate that the labour market has seen increased flexibility in recent years, evident in the adjustment of salaries to meet economic fluctuation.
The paper then focuses on how salaries are set, identifying two principle mechanisms that determine salary levels:
- competition - the law of supply and demand in the labour market;
- institutional mechanisms, established by government and the social partners.
Although the majority of salaries in Spain are determined through collective bargaining, the role of competitive adjustment factors should not be disregarded. Concerning gender, the paper points out that the average salary gap between Spanish men and women is around 25-30% (see Figure).
Part of this difference (30-50% of the total gap) stems from competitive issues, such as higher average education, training, experience and qualifications (‘human capital’) among men, or the presence of dangerous or unpleasant working conditions in certain traditionally male occupations.
However, the remaining 50-70% of the salary gap is a result of other factors. Possibly, these may refer to individual or job specific features that surveys have not yet managed to identify, or they could be due to gender discrimination, i.e. where the labour market makes an assessment of personal characteristics with no reference to productivity.
Discrimination by contract type
Looking at the segmentation by type of employment, the paper suggests that the presence of temporary employment can have two kinds of effects on the salaries of permanent workers:
- A cushion effect by which permanent workers may have higher salaries than their temporary colleagues. This can come about because any demand for increased salaries will not have a negative effect (i.e. dismissals) for permanent workers as temporary workers would be dismissed first (lower dismissal costs).
- A bargaining power effect with ambiguous results. On the one hand, as the share of temporary employment rises, the bargaining power of unions decreases and, in turn, salaries of permanent workers might fall. On the other hand, as temporary employment grows, permanent workers become more ‘essential’, to a certain extent, due to their higher endowment of job-specific human capital, which pushes up their salaries.
Empirical evidence suggests that the joint effect of these factors is positive. More specifically, as the share of temporary employment rises by 1%, salaries of permanent workers go up by 0.3%.
As far as the actual salary gap between temporary and permanent workers is concerned, taking all other variables as equal, the salary of temporary workers is 9-11% lower than that of their permanent counterparts. Moreover, temporary employment seems to be closely related to gender, age and educational level. In this sense, young women with low educational attainment seem to be encouraged towards temporary employment.
In spite of the existing legal framework, which expressly prohibits any kind of discrimination, these findings reveal the existence of a segmented labour market in Spain, with women and temporary workers experiencing some discrimination. The paper suggests that legal measures should aim at simplifying the different contracts, and making dismissal costs equal for all types of workers.