Wage moderation helps to improve competitiveness

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July 2nd, 2013

Salary adjustment in Spain is becoming more significant. In the first quarter of 2013, labour costs per hour posted
a decline of 0.7% year-on-year while this figure rose by 1.6% in the euro area as a whole and in Germany by 3.9%. These data contrast with what happened in 2009 when, in the midst of the recession, labour costs continued to rise sharply in Spain but to a lesser extent in the euro area and Germany.

This trend of salary adjustment in Spain started at the beginning of last year. The fall in labour costs per worker accumulated since then is 1.3%, a figure that appears to be relatively low. However, the picture changes if we compare the trend in labour costs with that of inflation: in real terms, the adjustment started in 2010 and has
now reached 7.1%.

The turning point has been different in each sector. This process began in non-business sectors which, in addition to general government, include activities related to education, healthcare and social services. Here the fall was particularly large last year due to the removal of the Christmas bonus. The other sectors undergoing extensive transformation as a result of the crisis, namely real estate and finance, have also started to adjust their labour costs. Specifically, the real estate sector has now accumulated five quarters of decline in wage costs per worker with these posting a fall of 2.4% year-on-year in the first quarter of 2013.

Another sign of wage moderation can be found in the trend in the wage increases agreed. In 2008 these stood at 3.6% while by 2012 they had fallen to 1.2%. In 2013 the number of collective agreements registered has fallen dramatically, going from 5,987 in 2008 to 547 this year and, as a result, any wage changes agreed might be less representative. However, they still seem to be showing a clearly downward trend with an average agreed wage change of 0.6%. The proportion of newly signed agreements containing a freeze or reduction in salary has also increased significantly. Whereas these were almost non-existent in 2008, in 2012 they accounted for close to 20%.

In short, wage moderation, one of the ingredients for  the economy to recover its lost competitiveness, is already underway. Now this must be completed with improvements in competitiveness which do not depend on price: namely better product quality and more efficient production processes. A combination of both ingredients is essential for the foreign sector to continue to gain ground.