The Minimum Wage in 2023 in Spain is approved at 1080€. Although its approval has been dated February 14, 2023, this is considered retroactive to January 1. This retroactivity implies that the employer must pay the difference in the following pay slips.
The Minimum Interprofessional Wage (SMI) is the minimum amount that any employee must receive. Regardless of the sector in which he/she works, or the autonomous community. In our country, the minimum wage dates back to 1964, and even then differences were established by age and by sector, which was unified into a single one in 1998.
Its increase or not, is the exclusive power of the Government. The minimum interprofessional wage (SMI) is set each year by Royal Decree. After consultation with the most representative trade union organizations and business associations. It takes into account the consumer price index, the average national productivity achieved, the increase in the share of labor in the national income and the general economic situation. In addition, a six-monthly revision is established in the event that the price index forecasts are not met.
Minimum Wage 2023 in Spain
It should be noted that the minimum wage amounts are gross. That is, the corresponding deductions must be applied. The minimum interprofessional wage takes into account all the concepts of the payroll, including salary supplements.
It is calculated on the basis of a 40-hour working week. In the event of working less than 40 hours, it will be calculated on a proportional basis.
Another important characteristic is that, according to the Civil Procedure Law, it is unseizable. This means that no creditor can seize a salary, wage, pension or any remuneration below this.
As we have said, it is the Government who fixes it, and for this it must take into account three factors:
- The rise in the CPI or inflation.
- The average productivity of the country.
- The increase in labor’s share of the country’s income.
However, there are other important factors in setting the minimum wage, such as political decisions. Or the negotiating role of unions and employers.
Who is affected by the increase of the Minimum Wage 2023 in Spain?
The increase of the Minimum Wage 2023 in Spain does not affect all workers, so not all of them will see an increase in their salary.
The increase of the SMI benefits mainly those workers who are not protected by a collective bargaining agreement. And therefore, their employment situation is strictly regulated by the employment contract signed with the company.
Article 27 of the Workers’ Statute establishes that “the revision of the minimum interprofessional wage will not affect the structure or the amount of professional salaries when these, as a whole and on an annual basis, are higher than the minimum wage”.
The increase in the minimum wage will also affect the payment of subsidies to unemployed persons over 45 years of age with family responsibilities. The benefit for those over 52 years of age or the extraordinary payment for the unemployed.
But it does not affect an employee who has a base salary below €1,080. And therefore it does not mean that he/she will experience this increase. The minimum interprofessional wage takes into account all the items on the payroll, including salary supplements. Therefore, the base salary may be lower than the SMI, but if the salary supplements exceed it, even by €1, it will not be modified.
How does the increase in the SMI affect the economy?
Here we enter into an endless debate, because of how it affects the economy in general and companies in particular.
It must be said that all the governments of democracy have raised the SMI. But the latest increases, due to the current context of the post-Covid crisis plus high inflation, are being made without the consensus of all parties. Specifically, only the government and the unions, not the business associations, and this is generating even more debate.
Opinions in favor of the SMI increase
On the one hand, it allows to maintain the purchasing power of workers with lower salaries in an inflationary context like the current one.
This allows us to reduce social inequalities without increasing public spending.
On the other hand, it brings us closer to the European average. Moreover, all our neighbors are or have raised their respective minimum wages. Although in many countries it is not linear, but applied by sector, as in Germany.
As the purchasing power of many workers improves, domestic consumption rises due to the higher marginal propensity to consume of the lower income sectors of the population.
And this would aid in the recovery of the economy in general.
Opinions against the increase of the SMI
Above all, the criticisms refer to an excessive or very repetitive and close increase in time.
For many, the increase in the minimum wage is always a hidden tax increase. Since, although it affects positively to a small percentage of workers, it raises the labor tax to the rest of workers with higher salary and who will see how in the net the contribution bases will rise.
Continuing to raise labor costs, with the escalation of energy and raw material prices, affects very hard-hit sectors where the SMI is very widespread. Such as agriculture, the hotel and catering industry, the cleaning sector, etc.
It may discourage foreign and national investment, since wage increases reduce competitiveness. And certain companies may look for other countries with lower wage costs to invest and create jobs.
It is particularly detrimental to SMEs since, according to the data, more than 95% of companies have less than 10 employees. And it is these SMEs that are the hardest hit, since large companies exceed the minimum wage and have more resources to hold on. Let us not forget that in 2022 the record number of company closures in Spain was broken with a figure of 26,207 closures or dissolutions. SMEs do not have the capacity to increase average productivity sufficiently to compensate for the increase in labor costs.
The positive effect of an increase in the SMI would be short term. Since the increased cost of labor would end up being passed on to prices, generating inflation. In a situation of high inflation such as the current one, workers could end up losing the purchasing power they would have gained in the first place.
Most affected sector
Finally, a sector that is fully affected is families, and it is considered to have a negative effect on the reconciliation of family life and work, especially in two ways.
On the one hand, the cost of domestic employees, where the hours worked are mostly remunerated with respect to the SMI. And this increase may have repercussions in the hiring of fewer hours, and therefore less income for a sector that supposedly benefits from these increases.
On the other hand, the care of minors and/or elderly dependents for the same argument above. But in addition, the latter are also affected when they are the ones who pay the costs of caregivers, usually with their pensions.
In both cases, as in some other sectors, it is considered that workers are being expelled from the labor market. Either because they bring little added value to their companies. Either because the employer (family, self-employed, company in crisis…) cannot meet these higher labor costs and therefore, there could be an increase in the underground economy.
Minimum Wage 2023 in Europe
The minimum wage in the countries of our environment is not a unified concept, neither in amount, nor in beneficiaries, nor in who decides its amount. Their amounts vary considerably depending on the strength of their economies and other factors.
There are countries in which this figure does not exist at a generalized national level. Austria, Denmark, Finland, Italy and Sweden have minimum wages set in collective agreements. While Cyprus has statutory minimum wage levels for different occupations.
When we look at it in absolute terms and on a 12-pay basis, we find large differences, ranging from €2,387 in Luxembourg to €578.8 in Hungary. In Spain we would be talking about €1,260 in 12 payments.
If we look at it as a percentage of the average salary, the situation changes drastically, as these are very different from country to country. With the exception of France, which is around 48-49%, the rest of the strong EU economies have ratios below 45%. With the most extreme case of just over 35% in the Hungarian case.
In Spain we find a minimum wage that is 60% of the average wage in Spain. But also with a great inequality by provinces as the average salary is very unequal according to each region. This causes that there are up to 24 provinces where the new SMI exceeds 70% of the average wage, according to the data of contributions to the Social Security. Such as Badajoz (77%), Cáceres (76%) or Almería (75%) among many others.
Not a single minimum wage
There are countries in which there is a clear difference by age in terms of the minimum wage to be paid, as in the case of the Netherlands and Great Britain. The latter, one of the last countries to apply the SMI, looked precisely at the Spanish evidence at the time, to establish differences according to age. One of the arguments in favor of an SMI according to age is to favor the entry of young people into the labor market. If the starting wage is too high, this may make it difficult for them to be hired. In the Dutch case, for example, at the age of 15, 30% of the minimum wage is paid and 100% is not reached until the age of 23.
In other countries, two types of minimum wage are established, for skilled and unskilled workers, depending on their training, as is the case in Germany.
If we refer to who proposes and decides the amount, in all countries it is the power of the government. In some cases it is the result of negotiations between the government, trade unions and employers’ organizations. In others it is decided at the proposal of independent bodies, formed or not by members of unions and companies, such as the Low Pay Commission in the United Kingdom or the Minimum Wage Commission in Germany.