The International Labour Organization (ILO) warned about the potential economic threat posed by the process of wage devaluation currently pursued by countries such as Spain to restore its competiveness. The United Nations agency identified household spending and employment as two areas where the impact of lower salaries is likely to have negative implications.
In its World of Work Report for 2013, the ILO also warned that if depressing wages is taken to an extreme, it could also backfire on efforts to rein in the public deficit by further depressing economic performance and increasing poverty.
The report was issued after the governor of the Bank of Spain, Luis María Linde, on Friday suggested that the application of the minimum wage should be left in abeyance under special circumstances, such as the poor employability of certain workers. The minimum annual salary in Spain is currently 14 monthly payments of 650 euros.
Labor reforms introduced in February of last year by Spain’s conservative Popular Party government make it cheaper and easier to sack workers by citing economic, operational and technological reasons, which can also be invoked by companies to lower wages, for example in the case of falling sales. Since the reform was introduced, the number of people out of work has risen by almost one million to 6.2 million, with the jobless rate at a record 27.2 percent.
The ILO said there was still a lack of sufficient statistical information to evaluate the full impact of the labor reform.
Private sector wages in the first quarter of this year fell by 0.9 percent from a year earlier after an increase of 1.7 percent a year earlier, while in the public sector, wages dropped 0.4 percent after an increase of 0.3 percent a year earlier.
At the end of last year, company-related earnings displaced wages as the main source of value added generated by the Spanish economy.
Company-related earnings have displaced wages as the main source of value added in the economy
The ILO report coincided with the release of figures from the National Securities Commission (CNMV) showing that the average annual remuneration of the directors of companies that make up the blue-chip Ibex 35 index increased by four percent in 2011 to 279,300 euros. That figure is more than 12 times the average annual salary in 2010, which stood at 22,790 euros and 432 times the minimum wage.
In its annual report, the CNMV said remunerations fell in 44 percent of companies in 2011, while in the case of 14.5 percent these increased by over 20 percent and between 11 and 20 percent in 11 percent of enterprises.
Labor unions have argued that the burden of restoring Spain’s competitiveness has fallen on the shoulders of workers through lower wages. “The trend in wages has been offset by company earnings and public prices,” the secretary general of the UGT labor union, Cándido Méndez said Monday.
Inflation in Spain in May rose to an estimated 1.7 percent from 1.4 percent, despite weak consumer demand.
Méndez counterpart at the CCOO union, Ignacio Fernández Toxo, said Linde’s comments could be a “trial balloon for someone who is using the governor of the Bank of Spain to start a debate on the possible elimination of the minimum wage. The lobby pushing for a single unified work contract and bottomless falls in labor costs is strong and is working on very influential people.”
Méndez said there was a “surplus of ideology and a lack of competence” at the central bank, while Labor Minister Fátima Báñez asked the Bank of Spain to help getting credit moving again. “The Bank of Spain also has a commitment toward the public in these times, because the most important thing for employment is getting credit to companies and freelance workers who are those that create jobs,” she said. “I am asking for their help.”