Margins, Wages, and SMEs: The Core Debate in Spain

Margins, Wages, and SMEs: The Core Debate in Spain

Why does worker productivity rise far above wages while some companies record maximum margins? This question permeates the Spanish economy in 2025 and offers few comfortable answers. The indicators contradict each other: some companies achieve record revenue and profits year after year, yet the country loses small businesses. Between December 2024 and July 2025, more than 19,000 SMEs disappeared, resulting in an estimated loss of 60,000 jobs. The picture does not fit a supposed boom.

Gross margin is not profit: the mistake that changes everything

Here lies the first misunderstanding. When talking about rising margins, we refer to gross margin on sales, not net profit or cash flow. These are distinct magnitudes, and confusing them leads to false conclusions. A high gross margin only indicates more remains after paying direct product costs; it says nothing about what remains after rent, payroll, energy, taxes, and debt. Some argue that presenting gross margin as synonymous with profit is manipulating the narrative, while others reply that if the comparison uses the same magnitude year after year, the trend is real regardless of the name.

The arithmetic of a typical SME explains why. Selling 1,000 with 500 in materials, 200 in payroll, 200 in rent, and 50 in electricity leaves a profit of 50. If sales halve, materials drop to 250, but rent, payroll, and bills remain the same: 700 in expenses and 200 in losses. The complete breakdown, item by item, leaves an uncomfortable conclusion: to double the profit, it is enough to go from selling 1,000 to selling 1,075. In the other direction, the same leverage effect multiplies losses.

Why do 19,000 SMEs disappear in just seven months?

Here the diagnosis splits into two. One block points to tax pressure, bureaucracy, and lack of representation as direct causes for SMEs sinking. The count from administrative managers also notes that disappearances already exceed the rate of new establishments, and that 4.8% of SMEs vanished in a single quarter. The other block points to real estate costs, energy prices, and the collapse in consumption: with people tight-fisted, there is no revenue to sustain a neighborhood business.

Where there is agreement is on the differential effect. A large company with an international structure negotiates prices, offshores, and accesses cheap financing; a neighborhood hairdresser does not. That is why aggregate records can coexist with the massive disappearance of microenterprises without any statistical contradiction. According to data cited by a participant, corporate profits in Spain as a whole fell by 23.5% since the pandemic, and this does not prevent a handful of multinationals and major banks from hitting annual records. Both things are true at once.

What taxes have actually risen?

Let us review, because memory often fails. The general VAT remained at 16% between 1995 and 2010; it rose to 18% that year and to 21% in September 2012, with the reduced rate at 10% and the super-reduced rate at 4%. In the Personal Income Tax (IRPF), the rise does not always come from a new rate: it comes from not adjusting for inflation. By not adjusting brackets to inflation, each nominal salary increase pushes the taxpayer into a higher rate without gaining purchasing power. The top bracket stands at 47% for incomes above 300,000 euros, and intermediate brackets range from 19% to 45%.

Some dispute that the tax reduces a company's margin: VAT is paid by the consumer and IRPF by the worker, so its effect on business results would be indirect. The argument, however, has a catch. A higher VAT increases the final product price and leaves less margin to raise prices while wages are frozen. The pressure does not arrive where expected.

Is more people living off the State than from private business?

The figure repeats like a catchphrase and deserves nuances. Adding pensioners, public employees, and benefit recipients, it is easy to exceed private sector workers in some comparisons. Other readings note that the percentage of public employees relative to the total is lower than in several European countries and that the real fiscal effort is higher in eastern economies. It depends on what is counted and how it is counted.

From this arises a curious cross. Those who argue that the problem is the excess of the State use the data to say that there is no liberalism here; those who argue the opposite use the same data to point out that the private sector no longer sustains the country. Both sides accuse each other of living off the public sector. The discussion about labels consumes the analysis of the numbers.

Why is it said that productivity rises more than wages?

Because producing more with the same staff is not the same as distributing what is produced better. According to this argument, worker productivity spikes when employment is precarious, when the working day is stretched without raising payroll, or when machinery is incorporated that replaces working hours. In all three cases, the indicator improves, but the employee's pocket does not. There are cases that have gone over a decade without real increases, with inflation eating half the purchasing power.

Regarding the Minimum Wage (SMI), the discussion is different. A minimum wage that rises faster than product prices increases labor costs without the margin holding, argue some. If wages rise by 10% and food prices by 50%, the account is unbalanced. Reducing it to reactivate the economy is the recipe others defend openly. And in between, a labor market that competes with wages from countries where the state does not pay healthcare.

What no label fixes

In the end, the simplest explanation is the one no one wants to hear: if the company beats records and the payroll has been the same for fourteen years, the problem is not productivity. It is that someone decided the margin stays on top. Call it liberalism, socialism, or fairy tales.