Why Spain's Minimum Wage Stalls While Ireland and the Netherlands Raise It

Raising Spain's minimum wage: the supporting and blocking data

Does raising the minimum wage destroy jobs? Proponents argue it does not, or at least not so far, pointing to examples like the UK, the Netherlands, and Ireland. The critical question remains: how many people actually live on this wage, and what is the margin before the increase becomes harmful?

How many people earn the minimum wage in Spain?

With the minimum wage at 700 euros, only 5% of the active population receives it, while 95% earn more. This data presents a dilemma: if so few earn it, raising it should not significantly impact the market; yet, it does not fully explain unemployment or job creation.

Some argue that with a minimum wage of 400 euros, IT professionals changed jobs every six months, teenagers dropped out of school, and construction sites were understaffed relative to official salaries. In hospitality, it was acknowledged that a minimum below 800 euros stifles consumption and hotel revenue.

The Bank of Spain report and the misquoted Nobel laureate

The debate is complex. While some claim David Card won the Nobel for proving minimum wages do not destroy jobs, Card actually developed methods to measure when they do, and reportedly asked that his name not be used to the contrary. Applying similar methodology, the Bank of Spain estimated 200,000 jobs lost from a sharp minimum wage increase. These numbers are disputed, but the caricature of Card's work does not hold.

Should Madrid and Barcelona have different minimum wages?

For proponents, a uniform national minimum wage is unjust given regional living costs, citing London's voluntary living wage. This supports proposals for regional or municipal minimum wages, modeled on the US system where local entities can set higher floors.

Critics argue that fragmenting the minimum wage drives businesses to cheaper areas. High mobility costs also negate higher wages in distant regions, with some tourism workers living in caravans or shared bunks.

Severance pay, the usual suspect

Severance for temporary contracts rose from 8 to 12 days per year worked. Some claim high firing costs deter hiring, citing a period with 40% temporary workers and 8 days' severance when unemployment was 20%, compared to 3% unemployment with 60 days' severance in the previous regime.

Two incompatible proposals emerge: one suggests companies set aside funds for potential severance (like an Austrian backpack); the other calculates that immobilizing funds for 16 million employees at an average salary of 26,000 euros results in nearly half a trillion euros lost to depreciation and taxes. The full breakdown of this cost remains unresolved.

How much can the minimum wage rise unnoticed?

Average salaries rise near 4%, making a 5% increase plausible. However, each increase that causes no disruption is used to justify the next, leading to absorption through prices or reduced hiring in an economy with weak industry and declining small businesses. The foreseeable outcome is another increase and debate over its actual impact, as the number of jobs not created remains unmeasured.