Living and working in Spain

The year witnessed the consolidation of a series of policies that the government had been implementing since 2019 to make the economy and labour market more resilient. Successive increases in the minimum wage have reinforced the economic capacity of the most vulnerable workers. Furthermore, the changes to the Labour Market Act approved in December 2021 altered the structural use of temporary contracts by employers, introducing a form of adjustment compatible with sustaining demand, which facilitated maintaining employment during the inflation crisis in 2023. Finally, the measure to limit gas prices (the so-called Iberian exception) successfully offset the most severe inflationary effects of the war in Ukraine.

These measures, among others, have contributed to a positive trend in employment and the economy. Specifically, the inflation rate decreased from 8.4% in 2022 to 3.5% in 2023, while food inflation dropped from 11.6% in 2022 to 9% in 2023. Employment not only recovered to pre-COVID levels but also grew by over 1.4 million people on a seasonally adjusted basis, reaching a historic peak in employment and active population in the third quarter.

Nevertheless, inflation and its impact on real wages remained pivotal in policy considerations. After several months of negotiations, the social partners signed the fifth peak cross-sectoral agreement for collective bargaining and employment in May 2023. This agreement, serving as a crucial mechanism for coordinating collective bargaining, outlined a three-year path for wage increases: 4% in 2023, 3% in 2024, and 3% in 2025. If actual inflation surpasses 4% in 2023, an additional 1% increase will be implemented in 2024 and 2025. Such clauses are not new: in 2023, 45% of workers covered by collective agreements already had revision clauses to allow wage increases in the case of real inflation exceeding forecasts.

Moreover, the Spanish government extended some key measures responding to the consequences of the war in Ukraine. These include the continuation of reduced value added tax (VAT) on basic food items, assistance for public transport fare discounts and the suspension of evictions for vulnerable families. Other noteworthy measures are the expansion of incentives for delayed retirement, reform of the vocational training system, a minimum of 40% women in the management bodies of public organisations and large companies, mandatory social security contributions for interns, the introduction of the first special unemployment benefit for the cultural and artistic sector, and reforms to the hiring incentive system. Additionally, the regulatory development of the flexibility and employment stabilisation mechanism was approved (the reformed instrument to avoid collective lay-off plans during cyclical or sectoral crises). The only discordant note sounded was the rejection by parliament of unemployment benefit reform, put forward by the Ministry of Labour, Migration and Social Security, necessitating further debates and renegotiation in 2024. Critically, this proposed law was not subjected to prior consultation through social dialogue mechanisms, prompting criticism from the social partners.