Labour market
Business 07/04/2022

Wages stagnate amid inflationary spiral

Unions and employers make no progress in negotiating wage updates

4 min
Wages recover purchasing power in Catalonia

MADRIDIn the last two weeks, employers and unions have not found the time to sit down and negotiate what the wage revision to be included in the new Agreement for Employment and Collective Bargaining (AENC) should be. The latest consumer price index (CPI), published in March , put inflation at 9,8%, making the negotiation process even more complicated, especially due to the fear of so-called second-round effects. "We don't know of any imminent meetings," sources close unions and business organisations say. But, while the new AENC continues to be a faraway prospect, wages continue to lose purchasing power.

In recent years, this negotiation was completed quickly because inflation remained low and stable (the AENC is the reference framework for negotiations of wages increases between companies and workers, and expired in 2020). However, wage revisions have not always been in line with prices. Without going any further, 2021 closed with an average agreed wage increase of 1.5%, while the median CPI rate for the whole year stood at 3.1%. This means that the agreements accepted a loss of purchasing power.

The Bank of Spain estimates that in 2022 the increase in prices will stand at 7.5% on average. This scenario is caused mainly by the outbreak of war in Ukraine, which has fuelled the rise in energy and fuel prices, the two main reasons for the rise in prices. Faced with this upward spiral, the Spanish government called for an "agreement on income", which it hoped would allow to share out the costs of the war in Ukraine. "The costs have to be shared between companies, government and workers. The issue is whether it is done equally or asymmetrically. But it is true that we are facing a situation unknown in recent years, and this makes the situation much more dramatic than in the 1980s," says Raúl Ramos, professor of applied economics at the University of Barcelona.

Small growth

While it is true that with the start of 2022 wage increases are being recorded, the revision of wages continues to be below the latest figure for general inflation (9.8%), but also for underlying inflation, which does not take into account neither energy nor food (3.4%). According to the latest data from the Ministry of Labour, the total number of agreements reviewed and signed between 2021 and February include an average wage increase of 2.3% for this year, i.e. almost one point more than the previous year's increase (1.5%), and affecting some 4.4 million workers.

The upturn is somewhat higher if we focus on agreements signed in January and February 2022, when inflationary tensions began to escalate. According to data published by the Ministry of Labour, wages are expected to increase by 2.6%. However, it is still too early to draw conclusions because these only affect 15,000 employees, as the Bank of Spain clarifies in the macroeconomic projections published on Wednesday. Thus, if the salary review begins to reflect the impact of inflation, it would be very timid, the main supervisory bodies assume. Another symptom of this is the difference in wage increases depending on the quarter in which the agreement was signed. Thus, while 98% of the agreements agreed in the first quarter of 2021 incorporate wage increases of under 2%, in the last quarter of the year only 57% remain under that threshold.

In 2021, multi-year agreements were also signed, i.e., they include increases not only for 2022 but also for 2023. In this sense, the average wage increase agreed for next year stands at 1.9% for about 1.5 million workers (many agreements still need reviewing). It is a moderate figure if one takes into account that the median inflation forecast for 2023 is 2%, according to the Bank of Spain.

Ramos recalls that when negotiating, "expected inflation" is always put on the table, but at the same time it must be taken into account whether it is "temporary or permanent" the professor says. "Until now, there has been talk of an expected inflation rate of 2%. If it were 10%, the unions would have to get tough, but the idea is that it will decline in the medium term," he adds. In fact, the Bank of Spain is forecasting a de-escalation of prices in the summer.

Increased clauses

fThe unions assume that the current inflation rate, above 7%, cannot be transferred to wage increases, but neither do they want a loss of purchasing power. That is why they are in favour of wage guarantee clauses. While for CCOO and UGT these would be necessary conditions The unions assume that the current inflation rate, above 7%, cannot be transferred to wage increases, but neither do they want a loss of purchasing power. That is why they are in favour of wage guarantee clauses. While for CCOO and UGT these would be necessary conditions the agreement, the employers reject them.

The main objective of these clauses is to facilitate that if in 2022 a wage increase well below inflation is agreed, it can be amended in 2023 and 2024, to bring wage increases closer to the increase in prices. However, in the eyes of the Bank of Spain, an upward trend in the wage guarantee clauses "constitutes a risk" due to the second-round effects that may result from it. That is to say, that inflationary pressures could be passed on to wages and further fuel price increases. "Linking salaries to inflation is dangerous, but at the same time workers have to be helped," says Ramos, who is committed to looking for alternatives such as incorporating supplements that allow purchasing power to be recovered, but which are not part of salaries. He also points to the root of the current inflationary problem: energy. "It is necessary to find a balance between 2% [current average salary revision] and 7% [estimated inflation]," says Ramos.

Over the years these clauses have disappeared (at present, only 17% of agreements contain them), although it is true that they have increased in the most recent agreements. Thus, in the first two months of the year these clauses already affect 30% of workers who have signed an agreement. In addition, the number of agreements that include a revision for the year 2023 has doubled. Even so, the small print of most of the clauses is nuanced: it is not an automatic review based on the CPI, but has a "multi-year component", i.e., a period longer than one year would be used as a reference to review salaries and, therefore, there would not be a direct transfer of inflationary peaks to salaries.

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