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2021 minimum wage hike in Spain Questions and Answers

2021-09-08 | Spain

In an interview on TVE this Monday, Spanish Economy Minister Nadia Calviño guaranteed that the minimum wage increase in 2021 will be approved this October and will not have retroactive effects. Yesterday, Tuesday, newspapers opened with the angry complaints of the doctrinaire petty bourgeoisie who, together with the employers' association flatly refuse any rise in the lowest wages given the lower profitability of their own capital. Meanwhile, the labor minister promised that she would "bring employers and unions together" during September. What lies beneath the fuss, and what real impact will it have on wages?

What kind of minimum wage hike is being discussed?

The 2021 rise in the minimum wage stands on the upward path opened in 2017 and accelerated by the Sánchez government.

The 2021 rise in the minimum wage stands on the upward path opened in 2017 and accelerated by the Sánchez government.

The government has proposed a "2021" rise in the minimum wage of €15, although in reality it would only apply after its approval, i.e. from October onwards. However, the increase in the minimum wage is pending an agreement between employers and unions that is likely to modify this amount downwards.

Why is the 2021 minimum wage hike resurfacing now and where is it headed?

The Ministers of Economy (Calviño) and Labor (Díaz) protagonists of the debate on the rise of the 2021 minimum wage.

The Ministers of Economy (Calviño) and Labor (Díaz) protagonists of the debate on the rise of the 2021 minimum wage.

One of the central promises of the Sánchez government was to bring the minimum wage up to 60% of the average wage. The fall in production during the first phase of the pandemic put this promise on hold but as of summer, with the timid and very weak economic improvement of the last few months, the promise was reaffirmed, albeit conditional on job creation.

Before the summer, the government announced that it would begin talks with the unions and employers in September and also started to release the first figures for the minimum wage rise

The path set by the group of experts to meet the programmatic commitment to reach 2023 with the minimum wage set at 60% of the average wage established a rise this year of between 12 and 19 euros and another in 2022 of between 24 and 40 euros.

The goal with respect to the amount is also to reach a middle ground and move forward on the 2022 path so as not to undertake a rise in September and reopen this debate almost immediately afterwards. The range in which the negotiations are moving, therefore, is wide.

However, the Government's commitment remains to place the minimum wage at the end of the legislature between 1,011 and 1,049 euros. Currently, it is set at 950 euros in 14 payments.

PSOE y Unidas Podemos negocian ya la cuantía para subir el SMI en septiembre, El Confidencial.

At the end of August, the issue was back on the table, this time with the approval of the minister of economy, in principle reluctant to a rise in the minimum wage during 2021. Behind the change was the increase of contributors to the Social Security and the arrival of the first transfer of European funds. A first meeting with the unions and the employers was then called, which ended without agreement and evidenced minor differences, of pace, within the executive, overstated by the conservative press.

However, the stances at the negotiating table on Monday were not so distant. The government was proposing in principle a hike for this year of between 12 and 19€ and in fact, during negotiations it put forward a hike of 15€ for 2021 and 31€ for 2022 conditional on job growth. The unions were raising the amount to 25€ in 2021 and the employers rejected any increase.

On Tuesday the economy minister seemed confident and pointed out that the increase in the 2021 minimum wage "would have to be relatively limited" and be conditional on job creation and the reduction of workers in some temporary layoffs that will be extended - under even worse conditions - after Sept. 30, when temporary layoffs were supposed to expire.

What is the effect of the increase in the minimum wage on wages as a whole?

Evolution of wages in Spain in 2018. The plunge in average wages reduces the total wage bill collected by workers, which become concentrated around the minimum wage, while improving the compensation of the corporate petty bourgeoisie.

Evolution of salaries in Spain in 2018. The collapse of average salaries reduces the total wage mass received by the workers who are concentrated around the minimum wage, while improving the salaries of the corporate petite-bourgeoisie.

It depends on the labor framework. Around the world it favors the replacement of older workers with younger workers at lower wages. In Spain, with cheap severance pay, it also encourages the dismissal or non-renewal of workers who have been working in the same company for years and have average salaries while hiring young people at wages closer to the minimum wage for the same jobs.

The overall result on wages is what we have been seeing in the Spanish labor market for some years now: average wages are disappearing and workers' incomes are becoming homogenized at the bottom around the now higher minimum wage. As of today the minimum wage is already 60% of the average salary in 10 out of 18 autonomous communities.

What the Spanish experience also says is that the surplus generated for the company by this general shifting of wages is distributed between the capital (dividends) and the salaries of the corporate petty bourgeoisie (the middle and upper-middle managers of the big companies).

To sum it up: workers lose purchasing power, overall capital pays lower wages and the corporate petty bourgeoisie increases its rents and becomes even more differentiated from the workers' standard of living.

So. Is the employers' association resistance to the new minimum wage hike fake? Irrational?

Antonio Garamendi, president of the employers' association CEOE, is against any increase in the 2021 minimum wage.

Antonio Garamendi, president of the employers' association CEOE, is against any increase in the 2021 minimum wage.

For large, highly capitalized companies, which are those linked to finance capital, the increase in the minimum wage is an incentive to rejuvenate workforces, obtaining direct cost savings and therefore a boost to their profitability. That is why large companies have not entered the debate -they know they will profit- and the minister has insisted that it should be conditioned "above all" to the creation of jobs among young people.

But the Spanish employers' association CEOE does not only represent large companies, even if they have the upper hand when it comes down to it. Most Spanish companies are small and medium-sized enterprises. Of these 49.6% of them have fewer than 50 workers and 30.72% have fewer than 10. According to data from the Adecco report, the salaries of workers in these companies are already very close to the minimum wage. For them, the 2021 minimum wage increase represents a direct increase in wage costs, not an incentive to reduce them.

SMEs, that is, the independent small bourgeoisie -industrial, service and commercial- are also on the ropes. They are the debtors of the bulk of that 36% of credit to companies that shows signs of default. For some of these companies the rise in the 2021 minimum wage will mean going into red figures.

No, their resistance to the 2021 minimum wage hike is not irrational or faked, beneath the violence of the most conservative press response lies the same reality that we have seen in small farmers and in the immorality of hoteliers' speeches during the pandemic: their businesses, too small to provide an outlet for the large idle capital looking for a profitable placements, are unable to increase their profit margins without brutally and directly attacking the living conditions of workers. The crisis is for them a daily existential danger and their desperation shows itself with increasingly anti-social and violent features.

What does the debate on the 2021 minimum wage hike really mean

Share of wages in total Spanish income since 1978 (including profit shares disguised as wages).  Labor's share only grows when capital suffers a crash and the bourgeoisie has not yet had time to further attack wages, labor maintenance spending and working conditions.

Wage share in Spanish GDP since 1978. The labor share only grows when capital crashes and has not yet had time to attack wages, spending on labor power maintenance and working conditions even more.

The debate between the petty bourgeoisie and the government on raising the 2021 minimum wage is not a debate on whether to raise the purchasing power of wages, not even of the lowest ones. The proof is that not even in the best-case scenario - the €15 proposed by the government - the proposed hike would cover the price hike, driven by the new Green Deal electric power rates.

The 2021 minimum wage hike is only one part, the safest for the government in view of the public's opinion, of an ongoing debate on the means to reduce the percentage of national income that goes into wages, a debate between the government - and big business - on the one hand and the petty bourgeoisie on the other.

But this tug-of-war over the means and the relative weights of capital and labor, in a situation of acute crisis like the present one, is in reality a debate on how to reduce the total mass of wages to be paid by capital. The government opts in principle for the most marketable way of doing it, raising the minimum wage while keeping redundancy costs low, a solution that has proved profitable for big business... but which at this point is perceived as an existential danger by an important part of the petty bourgeoisie, the owners of the SMEs.

That is why the government is trying to strike a balance between both groups, internally discusses the speeds and imposes macroeconomic conditions to small increases which are clearly insufficient to maintain the basic purchasing power in a context in which the Green Deal is sucking income from labor to hand it over to big capital (not only electricity companies) with increasing intensity.

There are no "good guys and bad guys" in this debate. All those involved in it aim to reduce our living conditions and worsen our working conditions in order to revive a faltering capital. They are fighting over the how, not over whether to do it or not.