Shrinking wages

The purchasing power of Spanish workers has fallen dramatically in the wake of adjustments made to collective bargaining agreements and continuing upward pressure on inflation. But the crisis and the perverse union of frozen wages and soaring prices not only reduce wealth, but also increasingly accentuate the inequitable distribution of it. This development is disturbing not only in its own right, but also because it is likely to place a drag on the future economic recovery. This is not a theoretical argument. It has been empirically demonstrated that countries with the greatest capacity for recovery have good welfare systems, such as the Scandinavian states, which also boast a better institutionalization of public life and greater cohesion between the different sectors of society.

The most destabilizing factor for a society suffering serious economic problems is not so much the loss of wealth or even an increase in poverty, but more the perception of inequality it creates.

Wage purchasing power is suffering its biggest decline since 1985. Salaries are feeling the effects of the recession and the labor reform, while prices continue to rise because of a lack of reforms in sectors where oligopolies exist. This is bringing about an internal devaluation that is necessary to gain competitiveness and emerge from the crisis. But this exaggerated devaluation could also help fuel a harmful decline in consumption.

The most worrying thing is that this recovery in competitiveness has been almost at the sole cost of sacrifices by labor, the most dramatic of which is the rise in unemployment. According to official figures, there are 1.7 million households in which none of its members are in work and only 67 percent of those signed on as unemployed are entitled to some form of benefit. The Bank of Spain has just recommended that companies reduce their profit margins to achieve balanced and lasting competitiveness.

There is an increased risk of moving toward a model of society in which the concept of social welfare is barely expressed. The inequality in income as measured by the Gini coefficient put Spain last year at its highest-ever level, just behind Latvia, while Eurostat’s 80/20 index puts it at the bottom of the table, a trend confirmed by various surveys. While the disposable income of households and non-profit organizations fell an annual 3.9 percent in the second quarter, and that of the public administrations by 10.2 percent, the income of companies rose 6.4 percent and that of financial institutions by 90 percent. Is there any way to stem these dangerous trends? Neighboring countries such as Italy and France are trying to do so through an array of measures aimed at a more equitable means of sharing the bill for the crisis.