Impact of the 2019 Minimum Wage Increase on Employment in Spain
A detailed study reveals significant job losses and labor market deterioration following the wage rise to 900 euros.
A recent study conducted by the Fundación de Estudios de Economía Aplicada (FEDEA) has found that the increase of Spain's minimum interprofessional wage (SMI) to 900 euros in 2019 has had a considerable impact on employment dynamics within the country.
Specifically, the increase affected 21% of Spanish companies and 12% of workers during the first twelve months following the change.
The study highlights that the effects varied significantly according to the size of the businesses.
In small enterprises with one to five employees, the wage hike impacted 100% of the workforce.
In contrast, larger firms with up to 250 employees experienced adjustments as a result of the increase, but only about 2% of their employees were affected.
For those companies where the wage increase applied to all workers, the salary growth was 11 percentage points higher than in businesses that were not fully impacted.
However, this substantial increase in wages was associated with a net decrease in employment by 4.5 percentage points overall.
The adverse employment effects were particularly pronounced among young workers, women, and low-skilled workers.
While the most severe repercussions were seen in micro-enterprises, companies with a workforce up to 250 also made modifications to mitigate the financial impact of the SMI increase.
These adjustments led to fluctuations in hiring and separation rates, characterized by the replacement of permanent contracts with temporary ones and a shift from full-time to part-time employment.
The report indicates that the decline in employment was counteracted to some extent by the potential earnings resulting from the wage increase, with nearly 40% of those potential gains being offset by the workforce adjustments.
Ultimately, this resulted in a net reduction in job growth, with a decline in the employment growth rate estimated between 0.5 and 1 percentage point, on an average growth of 3% observed during that period.
The findings suggest a strong negative correlation between the minimum wage increase and employment levels, particularly affecting smaller businesses and vulnerable labor demographics.
Specifically, the increase affected 21% of Spanish companies and 12% of workers during the first twelve months following the change.
The study highlights that the effects varied significantly according to the size of the businesses.
In small enterprises with one to five employees, the wage hike impacted 100% of the workforce.
In contrast, larger firms with up to 250 employees experienced adjustments as a result of the increase, but only about 2% of their employees were affected.
For those companies where the wage increase applied to all workers, the salary growth was 11 percentage points higher than in businesses that were not fully impacted.
However, this substantial increase in wages was associated with a net decrease in employment by 4.5 percentage points overall.
The adverse employment effects were particularly pronounced among young workers, women, and low-skilled workers.
While the most severe repercussions were seen in micro-enterprises, companies with a workforce up to 250 also made modifications to mitigate the financial impact of the SMI increase.
These adjustments led to fluctuations in hiring and separation rates, characterized by the replacement of permanent contracts with temporary ones and a shift from full-time to part-time employment.
The report indicates that the decline in employment was counteracted to some extent by the potential earnings resulting from the wage increase, with nearly 40% of those potential gains being offset by the workforce adjustments.
Ultimately, this resulted in a net reduction in job growth, with a decline in the employment growth rate estimated between 0.5 and 1 percentage point, on an average growth of 3% observed during that period.
The findings suggest a strong negative correlation between the minimum wage increase and employment levels, particularly affecting smaller businesses and vulnerable labor demographics.
Translation:
Translated by AI
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