The rise of 47% of the SMI in 5 years is the highest among the large countries of the EU

The 8% increase in the Spanish Minimum Interprofessional Wage (SMI) for 2023 is below the rise that most European countries have adopted this year to deal with rampant inflation.

Thomas Osborne
Thomas Osborne
06 February 2023 Monday 01:46
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The rise of 47% of the SMI in 5 years is the highest among the large countries of the EU

The 8% increase in the Spanish Minimum Interprofessional Wage (SMI) for 2023 is below the rise that most European countries have adopted this year to deal with rampant inflation. However, if examined from the perspective of the last 5 years, the 47% increase in the SMI in Spain is the highest among the large countries of the European Union. It is above 31% in Germany and 14% in France, to give two examples.

In this way, in 2023, Spain is situated in the middle zone of the European minimum wage classification, tied with Slovenia, and clearly behind the richest, such as Germany, France and the Netherlands, with which it has nevertheless reduced the gap in this last five years.

The starting signal for this succession of increases in the SMI was given by the first and forceful increase in 2019, when it went from 735 euros to 900. A 22% increase by the Government of Pedro Sánchez that caused a hectic controversy about its potential effects on the employment. Such an abrupt increase raised warnings, including that of the Bank of Spain, of its pernicious impact, especially on the group with the lowest wages. Subsequent studies conclude that the negative short-term effect was very modest.

However, the first increase was followed by others until reaching a minimum salary of 1,080 euros this year. And some economists point out that beyond this threshold the potential impact of the increases is more uncertain. Indeed, all the studies carried out so far focus on the increase in 2019, when the SMI was at low levels, and not now when it is already close to 60% of the average salary. “We started with a very low SMI, but we hardly have studies on the impact when it increases from higher values. When it is already around 60% of the average salary, you have to be careful with the rise ”, indicates Marcel Jansen, from Fedea. He also warns that “the SMI is reaching thresholds in which future increases could have more substantial effects on employment than those of the past. Extrapolating the impact of 2019 is a mistake. The context has hardened a lot."

For his part, Raymond Torres, from Funcas, points out that “the higher the SMI, the greater the incidence of any increase. If the increase is applied to a reduced minimum wage, it may harm low-skilled young people, but it is offset by the positive impact on demand. One thing makes up for the other."

From the unions they defend that there has been no loss of employment, despite how the warnings multiplied at the time. “The Bank of Spain spoke of hundreds of thousands of jobs that were going to be destroyed. Jobs were not destroyed, they were created. Now they no longer speak of job destruction and propose that 32,000 jobs will stop being created. The reality is that the SMI has not had a negative impact when it has grown exponentially”, affirms Mari Cruz Vicente, secretary of CC.OO Union Action.

When last Tuesday the Government announced the decision to increase the SMI up to 1,080 euros, it was a new clash between the Executive and employers. It is not only that the increase is only agreed with the unions and fully satisfying their demands, but it comes accompanied by the CEOE sit-in. The bosses' confrontation with the Ministry of Labor is once again evident. Antonio Garamendi's team has already planted Yolanda Díaz's in the two meetings in which the rise of the SMI has been discussed, the one in December and the one this week. In the CEOE they disagree both with the result and with the ways in which the negotiation has been carried out.

"Let them tell us the figure and that's it," Garamendi said before the meeting, implying that everything was decided in advance by the government. Now, once the figure is known, employers' sources point out that "the increase proposed by the Government in practice represents an abrupt interference in collective bargaining."

His argument is that although a large part of the workers are covered by collective bargaining and the vast majority of the wages set in the agreements exceed the SMI, the increase in the minimum wage "has an impact on the wage bases and drags down the rest of the tables ”.

They also add that "the increase in the SMI may entail greater demands for wage increases by raising the floor from which the price of the labor factor is negotiated in the agreements." If the displacement effect is added, that is, the pressure from the higher categories to maintain the pay differences and that there are agreements that use the SMI as a reference, this increase can produce more conflict and blockages in the negotiation of agreements, with special impact in some sectors.

Another element that raises discussion is the uniformity of the Spanish SMI, which does not distinguish by age or by territory. It is a homogeneity criticized by the CEOE, which raises the possibility of personalizing it, either with an SMI that contemplates a different bar for the youngest or depending on the wealth of the territories. "Why aren't the autonomous communities allowed to agree on a possible supplement to the SMI?" asks the economist Marcel Jansen, who considers that there is little debate about these options.

It is an option that the Government does not show signs of contemplating and that the unions reject outright. “The current model is the best. It is a minimum that aims to cover the basic needs of every person who works. If we start to make exceptions, we would stop having a minimum wage”, argues Mari Cruz Vicente from the CC.OO union.

Is eighty euros gross per month a lot or a little? The employers do the math and complain that it is one more burden in a difficult situation and when their social contributions have already increased. Remember that each company will have an extra cost of 1,547 euros per year per worker. In this increase they count the increase in salary, plus the 427 euros of difference with the current social security contribution.

On the other hand, from the unions they affect that they are only 80 euros. "We all know what it gives if this, for many parties it doesn't work," says Vicente, from CC.OO.