Trade union rejects wage moderation policy

The General Workers’ Confederation has proposed a series of measures to increase workers’ purchasing power in the economy. The confederation’s priorities include increasing the basic monthly pay rate and raising the national minimum wage to 60% of average monthly pay. However, agreements concluded in the first quarter of 2007 provide for, on average, a pay rise of just 2.87%.

The confederal committee of the General Workers’ Confederation (Unión General de Trabajadores, UGT) has announced a series of proposals aimed at containing inflation without negatively affecting pay and employment. A key priority of the trade union confederation is to increase the basic pay, laid down in agreements, to €1,000 a month. UGT also requests that the government continues to raise the national minimum wage (Salario Mínimo Interprofesional, SMI) to the level of 60% of the average monthly wage, as recommended by the committee of independent experts that advises on the implementation of the Council of Europe’s European Social Charter. (The average monthly wage is currently about €850.) Furthermore, the UGT demands the implementation of policies to reduce inflation, by means of moderating sales prices, and so boost the purchasing power of workers.

These demands are a response to the monetary policy of the European Central Bank (ECB) which has led to a continuous reduction in the relative proportion of pay in the national income over the last decade. According to the recently published OECD Employment Outlook 2007 report, Spain is the only member country of the Organisation for Economic Cooperation and Development (OECD) in which the purchasing power of the average wage in real terms fell by 4% between 1995 and 2005, while company profits rose by 73% for the same period.

Reasons for reduced purchasing power

Although several reasons are responsible for workers’ reduced purchasing power in the economy, two in particular stand out. First, the strategy of wage moderation has failed to control inflation (one of the basic premises of ECB policy). According to the trade unions, the efforts made to maintain wage moderation while raising productivity have been frustrated by price-fixing in certain sectors of the economy. This policy is most evident in services that are largely closed to foreign competition. Such a policy has damaged the competitiveness of the Spanish economy. Price stability and a reduction of the inflation gap between Spain and the eurozone average has been achieved only on the demand side, through a reduction in consumption. Given the high level of borrowing by Spanish families, and the effect that raising interest rates has in slowing down consumption, the ECB’s decision to raise interest rates in order to contain inflation in the eurozone is a cause for concern.

Second, it is often stated that the success of the Spanish growth model during the previous decade was based on an increase in precarious employment and low pay, particularly in the services and construction sectors. This would explain the fact that OECD Employment Outlook 2007 found that, in Spain, 20% of the total wage-earning population earned less than 60% of the average wage in 2005; the European average was 16% for that year. However, the Spanish government claims that the large-scale creation of employment has led to a general increase in income, allowing families to diversify their sources of income. The government sees boosting business productivity as the only way to combine pay rises and price stability.

Wage moderation maintained in 2007 agreements

The tendency towards wage moderation was maintained in the collective agreements concluded in the first quarter of 2007. According to figures published by the Ministry of Labour and Social Affairs (Ministerio de Trabajo y Asuntos Sociales, MTAS), these agreements provide, on average, for a pay increase of 2.87%, which is in line with the provisions of the Agreement for Collective Bargaining (Acuerdo para la Negociación Colectiva, ANC) (ES0702019I). The policy of wage moderation provided for in ANCs over the past few years has also been questioned by the critical wing of the Trade Union Confederation of Workers’ Commissions (Confederación Sindical de Comisiones Obreras, CC.OO), one of the signatories of the ANC. This critical wing of the confederation calls for a change in wage policy to make Spain’s economic growth compatible with greater social cohesion.

Juan Arasanz Díaz, QUIT, University Autònoma of Barcelona (UAB)

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