Victor Javier Cavia shares his story of how inflation in Spain has affected his lifestyle.
The collective bargaining agreement he was under has already expired, and his salary has not increased over the past two years. His salary was previously enough to support him and his family. However, with higher costs of living due to inflation in Spain, his salary is not enough anymore.
Previous joys, such as buying books and newspapers and dining out, had become a luxury he could not afford. He had to reallocate the money he usually spends on such things to expenses related to necessities.
A labor association has been helping him negotiate with his employer. Despite the meetings that have taken place, there is little movement in resolving the issue. The company is using the lack of a new collective bargaining agreement to its advantage. Without this, the company can withhold any increase in their employees’ wages.
Previously, the company offered a 1.5% increase in wages. The unions did not agree with this proposal. The suggested increase would not have been enough in the face of such high inflation in Spain. Even with the supposed increase in wages, employees will still be unable to cope with the price of goods.
Victor is not alone. Many more employees face the same problem.
Low Wages in the Face of Inflation in Spain
The COVID-19 pandemic furthered the gap between the lower and higher socioeconomic classes, which was already in place due to the economic crisis experienced by Spain in 2008. Those belonging to the lower socioeconomic classes are most vulnerable to inflation. Their situation has undergone little improvement, if any at all, over the years. On the other hand, those belonging to the higher socioeconomic classes continue to experience financial progress.
The annual salary in the hospitality sector was recorded as being 14,000 euros in 2007 by the country’s National Institute of Statistics (INE). This was 31% lower than the average annual salary in Spain. The numbers barely improved by 2019, which showed that the average annual salary in the hospitality sector just increased to 14,561 euros. This was 40% lower than the average annual salary.
Employees with higher salaries did not see the meager increase that those in low-paying jobs did. Rather, their salaries have gone up by much more. In 2007, the average annual salary of an employee in the finance sector was 38,870 euros. This increased to 44,302 euros in 2019.
The situation has been more beneficial for employees in industries related to electricity, gas, and air conditioning. Their average annual salary was 34,100 euros in 2007. By 2019, this had increased by roughly 50%, with those in the sector earning 52,162 euros.
This is supported by the average growth of the Tax Agency, which was 10.2% from 2007 to 2020 for employees. Inflation within the same period increased by 20.3% according to the National Institute of Statistics.
The Situation did not Get Any Better in 2021
Inflation in Spain and other European countries is nearing its ceiling. However, issues regarding the purchasing power of citizens and the cost of daily living remain. The value of goods and services continues to increase, while the income of individuals cannot match this increase. This leaves them with less financial capacity to afford their needs.
In December 2021, inflation in Spain reached 6.7%. This is the highest it has ever been in the past 30 years. Similarly, the average prices were 3.1%, which is higher than the average prices over the past 10 years.
Despite this, the salaries of workers only increased by 1.5%.
So many changes occurred during the COVID-19 pandemic. This resulted in increased prices for energy, challenges in global trade, and restrictions for businesses. As mentioned, the COVID-19 pandemic only contributed to the inequality that was already there in the first place. Worse, the gap between socioeconomic classes in Spain widened within a shorter period of time compared to other countries in Europe.
The unequal distribution of income remains a major challenge for the country. This is particularly disadvantageous to those in the lower socioeconomic classes because they will be unable to support themselves and their families. They also become less resilient when faced with financial drawbacks.
Economic Growth is not the Only Solution
Economic growth won’t be the all-encompassing solution to the problem of inequality in Spain. Opportunities in the employment market do not typically lean towards high-paying jobs. Rather, the structure favors the creation of low-wage jobs and unemployment.
Regarding the employment sector and taxation system, a study shows that “these structural characteristics mean that when the economy shrinks, inequality increases enormously, normally by way of a rapid increase in the number of low-income households and a fall in the relative weight of the number of middle-income households”.
With this, instead of considering just economic growth, focus should also be placed on the country’s taxation system. The redistributive capacity of tax policies should be evaluated so that those with higher incomes are taxed more than those with lower incomes.
Chema Martinez, the secretary-general of the services division in the Confederación Sindical de Comisiones Obreras (CC OO) union of Spain, shares that there has really been a decrease of the purchasing power by 6.2% in the past 11 years.
Despite the observed mismatch between the increase in wages and increase in inflation rate, he states that it is unnecessary for employers to adjust the wages in response to the rising inflation rate. However, he believes that appropriate actions should be taken so that wages can regain their purchasing power in the next two to three years.
The Spanish Confederation of Business Organizations (CEOE) heeds caution on suggestions of increase in wages. They claim that if businesses were to increase the wages of their employees by a large percentage, unemployment would increase as well. This creates a situation wherein inflation would become permanent in the lives of citizens. The CEOE believes that inflation is currently temporary and does not necessitate an increase in wages.