Fernando González Urbaneja | Wages are set by the market, by hook or by crook. But behind this axiom there are exceptions or nuances. Wages are set by agreement, often asymmetrical, between the payer and the payee. Either through a verbal or individual contractual agreement or through a collective bargaining agreement of any range. In this dynamic, the State intervenes, of course, with mandatory rules. The most typical intervention is the setting of the wage floor, the minimum that tries to prevent abuses in the form of exploitation.
There is an abundance of academic literature on wages that starts from the consideration of wages as a price adjusted by supply and demand. But wages involve many other factors that go beyond the framework of the natural adjustment of supply and demand. Wages determine a large part of budget revenue (more than half) because of their impact on personal income tax (around 80%). Also on social security contributions, which are nothing more than deferred wages that generate the expectation of an undefined benefit entitlement, since it depends on future income.
The most powerful governmental interference in the area of wages, apart from public salaries for civil servants or contracted workers of any kind, is in the setting of a minimum wage (SMI) for full-time work. The SMI is justified as a protective mechanism for fair remuneration that avoids exploitation or abuse and guarantees decent living conditions. The SMI tries to avoid subsistence wages, which for some people are the optimum of supply and demand, but which are incompatible with a social state, with a decent society that respects people and their most basic rights.
The responsibility for setting the minimum wage lies with the government, a political decision that may be the result of a social agreement, but does not require this procedure. It is an economic policy tool that tries to force wages generally upwards.
The claim that increasing wages goes against the volume of employment is legitimate, but academic, theoretical. Hiring involves many more factors that are difficult to weigh. Some academics argue that the best wage is the efficient one, which is neither maximum nor minimum; it is the one that generates stability, low conflict and progress. It is the one that suits all the parties involved in the process, which can be cooperative rather than adversarial. More wages does not mean less benefits; there is no direct or antagonistic relationship between the two concepts. Other factors come into play, such as productivity, competition, working conditions and even the character of individuals and their expectations.
One recommendation which enjoys general consensus is the ILO’s proposal that national minimum wages should reach 60% of the average wage. In the Spanish case, according to the latest official data for 2019, the average wage is 24,400€ per year, with fluctuations ranging from an average of 20,000€ in Extremadura to 29,500€ in the Basque Country; from 52,000€ in the energy sector to 14,000€ in the hotel and catering industry; 26,500€ for permanent contracts and 18,000€ for temporary contracts… with the additional fact that the most frequent wage, the median, stands at 18,500€.
With this battery of data, a reasonable approach for the minimum wage in Spain today would be around 60% of the general average of €24,400, i.e. €1,050 per month (14 payments per year) as a reference for 2019. By setting the SMI at this symbolic €1,000, the government is falling short of what should be a reasonable, albeit apparently audacious, political objective.
The employers’ arguments against this latest rise are well-founded, they are in line with the demands of companies that accumulate more low-skilled work. But they lack vision for the future.
It should be borne in mind that increasing the employee base in the minimum wage zone (now up to two million people) does not indicate balance; too many minimum wages that undermine collective bargaining power and leave little room for “efficient wages” (the thesis of Mercadona and others). This issue of the SMI requires more finesse than political photo-ops and posturing. Wages in Spain (too low) require deeper and more stimulating approaches.