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Labour costs and pay, and their macroeconomic effect, are currently very topical in Spain, with the social partners concluding in December 2001 an intersectoral agreement on bargaining, which provides that pay increases in 2002 should be linked to inflation and productivity gains Here we examine recent figures on the development of labour costs, pay and income distribution.
Until recently the basic source of information on pay developments in Spain was the pay survey (Encuesta de salarios) carried out by the National Institute of Statistics (Instituto Nacional de Estadística, INE), which has a number of serious problems (see 'Una nota sobre bajos salarios en España', Albert Recio, Cuadernos de Relaciones Laborales, No. 18, 2001). However, the INE's statistical system was recently modified and a quarterly labour cost index (Índice de Costes Laborales, ICL) was designed, which includes other labour costs in addition to direct pay. It has also been harmonised with Eurostat labour cost statistics, which are used as one of the 'euro-indicators'. The information for the ICL is gathered from 19,000 social security contributions accounts in industry, construction and services across the whole of Spain.
Here we examine the latest INE labour cost figures by sector and region, with figures on pay per worker per month and per effective hour, and figures on direct and indirect pay, and look at the distribution of the national income. The issue of pay and labour costs and their influence on macroeconomic developments is particularly relevant in Spain at present, following the conclusion by the social partners in December 2001 of an intersectoral 'agreement for collective bargaining 2002', which lays down guidelines and criteria for lower-level bargaining, including pay increases linked to inflation and productivity gains (ES0201207F).
As indicated by table 1 below, in sectoral terms the highest total monthly labour costs are to be found in industry, followed by services and then construction. Breaking down the overall figure into direct and indirect wage costs, this same ranking of sectors generally applies in both categories.
| . | Total labour cost | Wage cost | Other costs | ||||||
| . | EUR | Index | Increase (%)* | EUR | Index | Increase (%)* | EUR | Index | Increase (%)* |
| Total | 1,796.72 | 102.2 | 4.1 | 1,337.07 | 100.8 | 3.7 | 459.65 | 106.5 | 5.6 |
| Industry | 2,032.47 | 102.7 | 4.5 | 1,509.67 | 101.5 | 3.8 | 522.80 | 106.4 | 6.4 |
| Construction | 1,653.77 | 101.3 | 4.2 | 1,181.75 | 99.4 | 3.9 | 472.02 | 106.4 | 5.0 |
| Services | 1,740.99 | 102.5 | 4.2 | 1,306.07 | 101.1 | 3.8 | 434.92 | 106.9 | 5.5 |
* Increase on same quarter of previous year.
Source: drawn up by author from INE index of labour costs.
If the costs are calculated per 'effective hour' work, the sectoral rankings are similar - see table 2 below. However, the growth rates are higher in construction and services. The reason for this is that the statistics calculated per effective hour filter out the role of very short-term jobs. Therefore, because the service sector has a high employee turnover, service workers may receive more pay per hour worked, but in some cases they keep the job for less than a month, which explains the bias.
| . | Total labour cost | Wage cost | Other costs | ||||||
| . | EUR | Index | Increase (%)* | EUR | Index | Increase (%)* | EUR | Index | Increase (%)* |
| Total | 13.92 | 110.9 | 4.4 | 10.36 | 109.3 | 3.9 | 3.56 | 115.7 | 5.9 |
| Industry | 15.61 | 114.4 | 4.1 | 11.59 | 113.0 | 3.4 | 4.02 | 118.7 | 6.0 |
| Construction | 11.58 | 106.9 | 4.3 | 8.28 | 104.9 | 4.0 | 3.30 | 112.2 | 5.2 |
| Services | 13.82 | 110.7 | 4.9 | 10.36 | 109.1 | 4.4 | 3.46 | 115.5 | 6.3 |
* Increase on same quarter of previous year.
Source: drawn up by author from INE index of labour costs.
Pay to wage-earners may be broken down into direct and indirect pay. The former includes items corresponding to basic wages, bonuses and/or complementary pay, extraordinary payments, supplements and back pay. The latter includes indirect social contributions (for temporary incapacity, unemployment, deferred pay for retirement, supplements for subsidies and pensions, company insurance, compensation for dismissal, obligatory social security contributions, other non-wage items, etc) - what is sometimes call social and/or deferred pay. In terms of labour cost per effective hour worked (see table 2 above), indirect pay currently represents 25.57% of total labour cost.
Examining labour costs by regions (autonomous communities), the highest labour costs per worker per month are found in the Basque Country, followed by Madrid and Catalonia, and the lowest in the Canary Islands, followed by Extremadura and Murcia. The highest total labour costs per hour of effective work are found in the Basque Country, Madrid and Navarre, whereas the lowest are found in the Balearic Islands, Castilla-la Mancha and the Canary Islands.
There has recently been some controversy over the influence of pay on macroeconomic equilibrium. Some authors still consider labour costs to be the main cause of inflation, whereas others consider that the development of profits are also a factor, because the final price of goods and services is established by companies. There are many theories on this, such as the one indicating that, in order to account for the price structure, one must take a more complex approach by considering wage costs, technological costs (raw materials, energy, machinery, infrastructures etc), financial costs (interest rates, exchange rates etc), and taxation. Furthermore, the structural role of the various economic sectors may influence the structure of inflation. The government, for example, underlines the effect caused by the service sector in this regard.
However, a key issue is the comparison between the development of pay and of inflation, because this is what affects the purchasing power of wage earners. Bearing in mind that all pay statistics ignore the fact that there is a range of pay increases, in the last decade wage costs have in general risen above inflation, so real pay has shown a slight increase. However, it seems that in the past two years, with the first symptoms of a change in the economic cycle, this process has begun to be reversed.
Another figure to bear in mind is that of pay rises laid down in collective agreements (TN0103666U), which have tended to be lower than general actual pay rises, except in 1999. It would therefore seem that collective agreed pay increases play a role of moderation in pay growth, though acting as a buffer against excessive falls in real pay.
The trade unions state that 64% of the workers covered by a collective agreement signed in 2001 run the risk of losing purchasing power because they do not have a wage guarantee clause (offering compensation if inflation is greater than the agreed increase) or because this clause is ineffective. Agreements without a wage revision clause on average provide for a higher wage rise (4.02% in 2001) than those which do (3.54%).
The General Workers' Confederation (Unión General de Trabajadores, UGT) makes a positive analysis of collective bargaining in 2001, since more agreements were signed (4,058), covering more workers (8,162,003), and a greater proportion (74.83%) included wage revision clauses (ES0109204F). These clauses covered 6,107,412 workers. The Spanish Confederation of Employers' Organisations (Confederación Española de Organizaciones Empresariales, CEOE) calculates the cost of such clauses at EUR 420.7 million.
The average agreed pay rise in 2001 was 3.4%, though this was adjusted to 3.66% after applying wage revision clauses at the end of the year, because real inflation (2.7%) was higher than the forecasts (2%). According to UGT, of the 6.1 million or so workers covered by a wage revision clause of some type, 47.36% totally recovered the inflation differential with backdating, 23.51% recovered it partially, and 29.13% received no compensation.
With regard to income distribution, economists compare the development of real pay with productivity, in so far as this can be distributed between the total wage bill and gross profits (an empirical indicator this can be approximated as gross operating surplus), the sum of which would theoretically form the national income. Thus, when the increase in real pay exceeds the increase in productivity in a year, this indicates the growth of the proportion of the wage bill in the national product (GDP), and vice versa.
Examining the development of the pay of wage-earners as a proportion of Spanish GDP over time, the possible influence of the economic cycle in the development of the wage bill can be seen. However, it does not seem to be the only factor. Periods of economic crisis (1975-85 and 1990-5) saw rapid and severe reductions in the proportion of the wage-earners' pay in the GDP. In the period of prosperity between 1985 and 1990 the proportion of GDP made up by pay almost returned to the level of the 1980s. However, in the upward cycle of 1996-2000 the recovery of this indicator was very slight despite the high economic growth rates.
The new intersectoral agreement on bargaining in 2002 recently reached by the employers and the trade unions, which aims to achieve moderation in nominal pay rises, was concluded at a time of moderation in real pay. With a 2% forecast for inflation in 2002, it is possible that there will be a loss of purchasing power of wages, because: wage revision clauses do not cover the whole economy: not all companies are covered by a collective agreement, the intersectoral agreement includes company opt-out clauses; and the inflation differential may be greater than expected. (Daniel Albarracín, CIREM Foundation)