Spain raises the minimum wage impacting 2.5 million low-wage workers

In February 2023, the Spanish government raised the minimum wage by eight percent, reaching EUR 1,080 gross per month (1,171 USD)–60 percent of the Spanish median wage. The increase seeks to protect workers and reduce wage inequality amid high inflation and decreased purchasing power. The reform is expected to benefit 2.5 million low-salary workers, primarily women and young people.

In 2022, Spain’s annual average inflation reached 8.3 percent,¹ its highest rate since 1986. Due to higher prices and reduced purchasing power, individuals were less able to purchase essential goods and services. This situation disproportionately affected lower-income households, potentially leading to growing income inequality and poverty.²

On February 14, 2023, the Spanish government council of ministers agreed to raise the minimum wage (Salario Mínimo Interprofesional – SMI) by eight percent applied retroactively from 1 January 2023, for permanent, temporary, and domestic workers.³ This meant that low-salary workers would receive a gross salary of EUR 1,080 per month (USD 1,171) in 14 payment installments.⁴ The reform aims to ensure fair remuneration and a decent standard of living for low-income workers.⁵

Implementation

Between 2018 to 2023, President Pedro Sanchez (Spanish Socialist Workers’ Party – PSOE) raised the SMI five times, from EUR 736 to EUR 1,080 in 2023 (approximately USD 798 to USD 1,171).⁶ The largest income increase in 40 years.⁷ The reforms were possible after several agreements with unions and employers’ organizations, as well as a coalition with the left-wing political party, Podemos.⁸

The government began new negotiations to increase the SMI for 2023 to counteract growing inflation and fulfill its commitment to raise the SMI until reaching 60% of the average wage in Spain,⁹ as stipulated in the European Social Charter.¹⁰

The reform was negotiated between the government and the largest Spanish trade unions, the General Union of Workers (UGT) and Workers’ Commissions (CCOO), despite opposition from Spain’s main employers’ association.¹¹ The Confederation of Employers and Industries of Spain (CEOE) initially proposed a contained increase to 1,040 euros (4 percent). However, they decided not to participate in the negotiations, claiming there were no conditions to negotiate.¹² Finally, the Ministry of Labour agreed with the main trade unions to an increase of 8 percent in the absence of the CEOE.¹³

Cost

Further details on the cost of the last minimum wage raise are yet to be identified.

Assessment

The impact of the SMI increase for 2023 has yet to be determined. Trade unions estimate that 2.5 million people will benefit from the reform.¹⁴ Young people and women are expected to benefit from it the most.¹⁵ In contrast, the business sector warned that a too sudden SMI increase could be detrimental for small businesses, farmers, and public administration subcontractors.¹⁶

Recent studies on past salary increases in Spain have analyzed their benefits and risks. The Iseak Foundation reported 1.5 million workers’ living conditions improved in 2019, with a greater impact on women, immigrants, and young people, who are more likely to have lower wages and precarious jobs. Impacts vary depending on the employment sector, with the largest effects in primary sectors (agriculture, raw materials, and domestic activities).¹⁷ The study also demonstrated that the new SMI increased the probability of experiencing unemployment and a reduction in work intensity after one year.¹⁸ 28,000 jobs were lost following the 2019 wage increase. It was, however, categorized as a reduced impact compared to initial predictions of 94,200 to 172,700 job cuts.¹⁹ 

Additionally, research from the University of Alcalá de Henares and Complutense (2019) suggests that the minimum wage increase reduced income inequality (7 to 10 percent according to the Gini and Theil indices), and lifted almost 200,000 households out of poverty.²⁰ Opposing views from, for example, the Spanish Confederation of Small and Medium-Sized Enterprises (CEPYME), reported on the resulting burdens on small businesses, operating with less margin to cover costs. According to CEPYME, by 2022 the wage increases had prevented the creation of 161,000 jobs, especially for unskilled and inexperienced workers.²¹ CEPYME also stated that, in some provinces of the country, the SMI was already higher than 60% of the average wage, which correlates with higher unemployment rates in those areas.²²

Tags

• Children & Youth
• Europe
• Gender
• High-Income Country
• Income & Wealth
• Labor
• Low-Income Groups
• Redistribution
• Spain
• Universal