Tuesday, December 6

The three reports on the rise in the minimum wage and what they say about poverty and the impact on employment


New research reports on the minimum wage (SMI), specifically three, with results regarding the great rise of 2019, of 22.3%. Above all, the conclusions of two of them stand out as novel regarding their notable effects on reducing poverty and inequality, a major problem in Spain, with very high rates compared to other European countries. Also relevant is a study on the impact of the increase in the SMI on employment, an aspect that concentrates great interest and is also the focus of much political discussion, which concludes – like the Bank of Spain and AIReF – that the negative impact in employment is reduced, even more than estimated by these two economic institutions.

Work gives two months to the experts to draw a rise in the minimum wage according to the current situation

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The results correspond to three studies commissioned by the Ministry of Labor on the increase approved in 2019, which advanced Cadena Ser, now in the hands of the commission of experts for the rise of the SMI and to whom this medium has accessed. The first, from December 2021 and carried out by ISEAK, focuses above all on the impact of the SMI on employment. Two others, dated last October, focus on wage inequality (Universidad Complutense de Madrid) and the effect of the SMI on poor households in Spain (Universidad de Alcalá).

The minimum interprofessional salary (SMI) is a powerful tool in the hands of the Government, which is the one who defines its amount each year, setting the legal minimum salary that can be paid in the country. Thus it marks the lives of thousands of people, almost two million workers this year and also their homes, as well as thousands of companies. For this reason, the indicator arouses enormous interest and is a focus of political struggle, as in so many other issues of economic importance.

“Limited” employment impact

The three new investigations delve into several key questions about the importance of the SMI. On the one hand, in the impact of increases in the minimum wage on employment, one of the points most studied to date by economists. After decades in which the theory prevailed that increases in the SMI substantially reduced employment, the economists David Card and Alan Krueger, winners of the Nobel Prize in Economics last year, shook economic doctrine in the mid-1990s with an investigation which disproved the dogma: it did not always cause the destruction of employment and, if it did, it was small.

Since then, the impact on employment has continued to attract much interest and research has delved into how these lower wage increases may affect job creation. In Spain, regarding the great increase in the SMI of 2019, of 22.3%, from the political and media right they warned that it would cause great job destruction.

However, the studies published later that have analyzed the effects have concluded that the negative impact (mainly from less job creation, but also from the destruction of existing jobs) was less than estimated. The Bank of Spain calculated a negative effect of 0.6% to 1.1%, which translates into some 94,200 to 172,700 fewer jobs in 2019, the year in which some 400,000 jobs were created. AIReF estimated a lower creation of jobs among low-wage employees, but much lower: from about 19,000 to 33,000 fewer jobs (-0.13% and -0.23%).

The new study, by ISEAK and led by Professor Sara de la Rica, concludes that the negative impact on employment was even less, around 28,800 jobs. The research shows that the negative impact is focused above all on the loss of jobs in the group reached by the rise in the SMI (about 1.5 million working people), of -1.92 percentage points. With a much lower incidence, the study estimates a limited reduction in the intensity of work in the group, of -0.84 percentage points.

“It can be concluded that the impact is null or very small in the first months after the increase in the SMI”, highlights the ISEAK research in its summary, “however, a year later there is a slight negative impact on the employment of 2, 8 percentage points (pp)” one year later, which adds the two impacts described. This report aroused great interest in making it public, which was insisted on by parties such as Ciudadanos, and finally a thinktank He got the authorization thanks to a request through Transparency, as he explained a few days ago on his Twitter account.

Significant reduction in poverty and inequality

The other two studies focus on the effects on poverty and inequality, a less studied and also very relevant dimension of the impact of the minimum wage, as recognized by the Bank of Spain itself in its analysis of the 2019 rise. This is the matter that The committee of experts for the rise of the SMI will also have to analyze this November, which will also calculate what is the reference of 60% of the average salary in Spain, up to where the Government promised to increase the minimum wage at the end of the legislature.

Research from the University of Alcalá de Henares, led by José María Arranz Muñoz and Carlos García Serrano, highlights the significant presence of workers who receive the SMI in the poorest households in 2019. This meant that the increase in income derived from the The increase in the SMI would translate into thousands of households (200,000, they calculate) that came out of poverty, the researchers indicate.

“The rise in the SMI helped move a significant proportion of households with wage earners who earn the SMI or less out of monetary poverty between 2018 and 2019. This number could be around 200,000, 19.3% of households that in 2018 they were in a situation of monetary poverty and had at least one salaried person with a salary equal to/less than the SMI”.

In addition, the report contemplates “a considerable reduction in wage inequality in 2018-2019”, according to different indicators, such as “through indicators of inequality and poverty, with reductions of 7-10% according to the Gini and Theil indices”, they maintain. .

The study by the Complutense University agrees that the rise in the SMI in 2019 had effects in reducing wage inequality and poverty among workers. “The revaluation of the SMI had both positive effects in reducing wage poverty (a high percentage of wage earners exceeded the threshold of 60% of the median contribution base), and in reducing wage inequality (the effects positive marginal rates on the group most sensitive to the measure are greater than on the rest of the workers),” he says.

Among its results, the research shows that the average monthly labor income of the group of workers most exposed to the rise in the minimum wage “increased between 7.7% and 10.12%”, amounts “much higher than those experienced by the rest of the workers, who increased their salaries between 1.32% and 3.3%”.

With this and other documentation, the members of the committee of experts on the SMI must issue a new opinion at the end of this month. From this, the Ministry of Labor will discuss in December with the unions and employers how much to raise the SMI in 2023, a debate in which high inflation will play a very important role. Everything indicates that, due to skyrocketing prices, the Government will expand its commitment and place the SMI beyond the goal of 60% of the average salary, a claim by the CCOO and UGT unions in the current scenario.



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