Tuesday 16 July 2019

Concern wage hike in Spain may 'destroy' 125,000 jobs

 

Spain's PM Pedro Sanchez. Photo: REUTERS/Susana Vera
Spain's PM Pedro Sanchez. Photo: REUTERS/Susana Vera

Jeannette Neumann

Spain is embarking on a major economic experiment - a 22pc jump in the minimum wage that's ignited a high-stakes debate about how it will affect the economy.

Spain is embarking on a major economic experiment - a 22pc jump in the minimum wage that's ignited a high-stakes debate about how it will affect the economy.

The Socialist government says the increase will bolster spending and hiring, giving legs to Spain's expansion. But opposition lawmakers and wary business executives say any additional pep to the economy won't be enough to offset the thousands of jobs they expect to be destroyed because companies can't afford the jump in costs.

The increase to €900 from €736 a month came into effect at the start of the year and directly affects about 8pc of Spain's workforce, or 1.2 million employees.

Its effects are already rippling through Spain's economy, forcing companies to respond.

Jorge Montes, who runs a dry cleaners in Madrid, is about to raise his prices for the first time in a decade to cover the €164 more per month in salary he'll pay to one of his two full-time employees.

"I'm going to try to pass that on to the consumer," Mr Montes said. "I didn't dare do it before because I didn't want to lose market share."

Madrid joins other governments around the world, including France, Greece, a Canadian province and some US states, that have recently lifted minimum-wage rates to jump-start broader salary growth, which has remained sluggish despite the economic recovery.

For politicians, it's a way to curry favour with voters and diminish the appeal of anti-establishment parties.

However, Spain's central bank estimates the wage jump could destroy around 125,000 jobs this year.

Bloomberg

Also in Business