Spain does not have a labor cost problem and, therefore, there is enough room to raise social contributions. The Minister of Inclusion, Social Security and Migrations, José Luis Escrivá, has been repeating these ideas since Monday afternoon, after agreeing with the unions an increase of 0.6 points in social contributions, which will be distributed in the same proportion as the rest (0.5 points for the employer and 0.1 for the worker).
The measure made employers get up from the negotiation table of the pension reform, since it is designed to pay the extra cost of the system when retirees born in the country enter en masse. baby boom. Employer leaders have justified this plan by considering the measure insufficient, while increasing labor costs, which, according to denounce, are already among the highest in the EU. Is this true or is there scope to increase these costs as Escrivá assures?
One way of evaluating this question is the weight of social contributions (paid by companies and workers) on the Gross Domestic Product (GDP). According to the latest available data for 2019 from Report on tax trends in the EU prepared by the European Commission, the weight of contributions in Spain as a whole (employer quota and worker quota) is equivalent to 12.1% of GDP, almost one point less than the weight represented by these payments in the EU-27 (13 ,1%). Although the biggest gap comes when you look at who pays for what. Thus, in Spain, business payments are equivalent to 9% of GDP while workers pay 3.2%. This means that companies pay 1.7 points more than the average of employers in the EU (where the weight of the business contribution is 7.3% of GDP). On the contrary, Spanish workers pay 2.6 points less than their European colleagues (5.8% on average).
This higher tax wedge in the case of Spain due to the level of contributions that is applied to companies, “may be an obstacle to the competitiveness of the economy and the creation of employment”, due to the increase in labor costs that it would entail, he warned the latest 2020 fiscal competitiveness report from the Institute of Economic Studies (IEE). For this reason, before the Government’s intention to increase contributions was known, these economists advised that “if the aim is to increase collection with Social Security contributions, the means for this should not come from an increase in the contribution rates that increase the payment of contributions per employed person, but rather for the generation of employment ”. In this way, the labor cost per worker would not increase, but rather the contributor base would expand, also increasing income.
The unemployment problem
This argument, which has been used by the employers in negotiations, is reinforced by the high level of unemployment that Spain has compared to European countries. According to the latest comparable data from Eurostat, the Spanish unemployment rate (14.6%) is double the average of the euro zone (7.4%). This thesis led the IEE technicians to calculate that if Spain managed to have an unemployment rate similar to the community average (with around two million more jobs) the weight of contributions on GDP would go (with 2018 data) from 11.7% to 12.9%, with an increase in the system’s income of close to 14,000 million euros per year.
The economist Miguel Ángel García – who also considers the agreed increase in contributions an insufficient patch – coincides with warning of the danger of raising labor costs in an economy with 14% unemployment such as Spain. In one of his jobs for Fedea, The Spanish public pension system: Myths and realities, also warned of the risks that other measures to increase income would have on the economy, such as the drop in contributions without increasing the maximum pension, “which in addition to drastically reducing the contributivity of the pension system, would go in the opposite direction to converge with the average of the countries of the euro zone ”due to the increase in costs for the employer. He also discouraged convergence with Europe, via income, raising the worker’s quota, due to the reduction in income that it would mean (more than 7 points), especially for lower wages.
However, another way of approaching the comparison of labor costs paid by companies is the one handled by Social Security, which reflects the labor cost per hour worked which, indeed, largely due to lower wage levels (although not for this reason alone), they give a greater margin for the increase in prices. In fact, practically all the European countries that compete with Spain (including Greece and Portugal) have a labor cost per hour much higher than that of Spain (see graph). The comparison made by the OECD, also with 2019 figures because those for 2020 are highly conditioned by the pandemic, indicate that Spanish employers pay an average of 21.9 euros per worker and hour (adding wages and contributions) compared to 27 , 7 euros from the EU-27 or 31.4 euros from the Monetary Union.
However, despite the rarefied climate that the business establishment has left in the social dialogue, the Minister of Labor, Yolanda Díaz trusted yesterday to have the support of the employer for the next labor reform, which continues to be negotiated in meetings that will last “many hours, ”Diaz said.
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