BARCELONA—For some, the Spanish government’s plan to increase the minimum wage by a whopping 22 percent is a sign of economic recovery after the drawn-out economic nightmare the country had to grapple with following the 2008 world financial crisis.
But the opposition, business community, and even the head of the country’s central bank are warning that the plan by leftist Prime Minister Pedro Sanchez to increase the minimum wage to 900 euros ($1,010) a month from 735.9 euros ($826) would lead to job losses in a country that saw unemployment rates top the 25 percent mark during the crisis.
Last week, Pablo Hernandez de Cos, governor of Spain’s central bank, told reporters that the wage increase would mean a loss of 150,000 jobs, or 0.8 percent of the country’s workforce.
Pablo Casado, leader of the conservative People’s Party, has labeled Sánchez’s 2019 budget—which calls for the wage increase and hikes in taxes and spending—”economically suicidal,” according to the Financial Times.
“If the rise is not gradual—done over some time—there may be a risk of job destruction,” said Joan Ramon Rovira, director of economics studies at the Barcelona Chamber of Commerce, adding that those who would be impacted most are unskilled workers and small companies that can’t afford the additional labor costs.
The European Commission has also estimated significant job losses will result after the minimum wage hikes, saying that the potential number of jobs that could be created from 2019 to 2020 would be reduced by up to 80,000 due to the rise. The EU has raised concerns that Spain may be deviating from the bloc’s fiscal requirements, and asked Madrid for more information on its budget. However, Sanchez’s administration is maintaining that the government is on course to reduce the national deficit.
The minimum wage increase has its supporters, especially among workers’ unions. Currently, Spain is in the mid-range of minimum wages in Europe, which range from around $200 to around $2,000.
“The measure is not only positive, but also necessary,” said Nuria Gilgado, secretary of trade union policy at General Workers’ Union in the Spanish region of Catalonia. “During the crisis, workers lost purchasing power and now is the time to raise salaries,” she said. In fact, Gilgado says the government should take its pay increase further, setting the monthly minimum at 1,000 euros ($1,125).
The financial crisis that hit Spain in 2008 lasted until 2014, during which the country’s GDP was reduced by around 9 percent, and the unemployment rate reached its highest level in 2013 at 27 percent. Since 2013-2014, Spain’s GDP has been experiencing growth, and the unemployment rate is currently around 15 percent.
Passing the Budget
The governing Spanish Socialist Workers’ Party’s budget still needs to be approved by the parliament, but that may pose a challenge.
To pass the budget, Sanchez—whose party holds just 84 seats out of 350 in the parliament—would need to seek support from Catalan separatist parties. However, the pro-independence parties hold grievances of their own against Sanchez, since several of their leaders are either detained or in exile.