The Spanish Government’s 22% increase for the minimum wage is causing shockwaves for the economy.
The Socialist government is increasing the minimum wage in Spain from €736 to €900 a month in a bid to bolster the economy and improve spending across the country. However, many economists, opposition lawmakers and business owners have doubts over the plan due to how it might negatively affect the economy. Many believe the increase is simply to try and improve the favour with voters.
The government hopes that higher salaries will encourage greater spending which will then require greater hiring. However, the timing is not ideal, as Europe seems to be heading for an economic slowdown, which is currently predicted to worsen later in 2019.
The increase came into effect at the start of 2019, but is now starting to show signs in the economy. Currently, the increase directly impacts 8% of the Spanish population which equates to 1.2 million employees. Many business owners believe that thousands of jobs may be lost because companies cannot afford such a high increase in the cost of wages.
Many business owners are trying to pass the increased cost on to the consumer by raising prices. However, some firms are reluctant to do this in case they lose their market share. If business owners do pass on the cost to consumers, then inflation in Spain could be boosted by 0.4%.
Spain is not the only country to increase its minimum wage. Recently, Greece, France and many US states have raised their minimum wage rates in a bid to jump-start a salary growth. However, for Spain, it is thought the hike may cause jobs to be lost in a country where unemployment is already the second-highest in the EU.
Spain’s central bank predicts the hike will lead to a loss of around 125,000 jobs in 2019 alone. While budget watchdog AIReF predicts a loss of 40,000 jobs and another Spanish bank, BBVA, predicts a loss of 160,000 positions in the medium term.