Good employment data puts pressure in favor of a wage increase

And the numbers are eloquent: according to the EPA, in 2021 the number of wage earners has increased by 732,700, the strongest rise since 2005; In addition, the quality of employment improves: the number of full-time jobs increases by 901,800, and part-time jobs decrease by 61,200. And unemployment also fell significantly: in the last 12 months, it fell by 615,900 people, to a total of 3,103,800; the unemployment rate stands at 13.3%, the lowest level since 2008. And among other things, this rate, although high, may be one of the keys for these demands for higher wages to materialize. “The upward pressures [en las retribuciones] they manifest themselves when the unemployment rate drops to its structural level. With other European countries, it is easier to know when it has been reached: around 4%, 5%, 7%; here, it is more difficult, because it is so high… with the current unemployment figures we could already be there” he points out Maria Jesus Fernandez, senior economist at the Funcas analysis center.

One of the arguments used by the unions to demand far-reaching salary increases is that the loss of purchasing power of the salaries that occurred during the previous crisis -the financial one, which began in 2008- has not yet been compensated: “We link one crisis with another,” says Alberto del Pozo, Economics Coordinator of the UGT Studies Service. “According to the Labor Price Index of the National Institute of Statistics, the accumulated loss in wages in the 2009-2019 period is more than 7 percentage points, especially due to the collapse in the first years, until 2013. Economic growth that was registered in the last part of that period was not transferred to wages, among other reasons due to the imbalance in the negotiation caused by the 2012 labor reform”, he explains.

And the most pressing reason why the voices calling for more pay are being heard more and more is the rise in prices, 3.1% average in 2021, compared to a 1.5% increase in wages in the agreement: “It is the other major factor, along with the improvement in the economic situation and the consequent drop in unemployment, which increases the upward pressure on wages: inflation encourages employees to ask for raises so as not to lose purchasing power; whether they succeed or not depends on their bargaining power, which also has to do with the unemployment rate”, summarizes Leopoldo Torralba, deputy chief economist at Arcano Partners. “We do believe that, to the extent that the situation normalizes in the health field, it should also do the same in the economic field, and with this the bargaining power of employment will increase, with which we will soon see wages in agreement of in around 2-2.5%”, he anticipates.

Second round

The relative consensus that there is going to be pressure in favor of wage increases turns into a variety of opinions when the question is about their convenience. From the well strongly advocates increases: “We have to reaffirm economic growth and generate expectations of confidence, which are diminishing from other sources: the evolution of the pandemic, energy prices, the geopolitical crisis in Ukraine… Given these uncertainties, households can choose to retract the consumption; and what we need is an injection of confidence to send the signal that it is time to buy, so that companies hire more and produce more. We have to raise wages,” he concludes.

Fernández, on the other hand, believes that the conditions to increase salaries do not exist because the companies are already coping with other increases: “the rise in the cost of raw materials, energy, transport… one more rise in production costs would become the perfect storm, it would be a big stick for companies,” he says. In addition, he warns of the so-called second-round effect: “there is a risk that the rise in wages will give rise to a spiral of wage-price increases that will not recover purchasing power (for employees of businesses in which prices rise as high as same as wages) and that reduces activity and employment (in companies that cannot raise wages because they are in more competitive sectors)”.

Between one and another position, Torralba intervenes: “we must seek balance; It must be taken into account that after the previous crisis, companies gained a lot of competitiveness and sold a lot abroad due to wage control; at this point in the cycle, with unemployment falling and companies growing, it is normal for companies to assume that they have to make reasonable raises for their employees”. What is reasonable? The increases that, discounting productivity, do not exceed the traditional inflation target of the European Central Bank of 2%, he assures. “the average productivity of employees in recent years has grown by 0.5%; so increases up to 2.5% are reasonable”.

Apart from the analysis, the reality is in motion: UGT and CCOO already demonstrated in December before the employers to demand a new general collective bargaining agreement, which includes the general lines of where the salaries that are agreed in the 5,000 agreements that exist in Spain must move, and the Salary Minimum has a start date for trading: February 7.