Archive image of the Minister for Social Security, José Luis Escrivá. SUR
Pension reform could impact employment and wages warns Bank of Spain

Pension reform could impact employment and wages warns Bank of Spain

Finance ·

The financial institution also disagrees with figures drawn up by the Minister of Social Security, José Luis Escrivá

Lucía Palacios

Wednesday, 7 June 2023, 18:21

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The Bank of Spain has warned the government that the new pension regulation could have a negative impact on employment, wages and the competitiveness of companies. This, it said, is due to the triple increase in contributions that the regulation imposes and that will particularly affect workers with higher salaries, who will be penalised in three ways, while the rest of the workers will only be affected by the increase in contributions that the new intergenerational equity mechanism entails.

According to the analysis published on Wednesday and drawn up by experts from the institution, those on the highest incomes will have to pay ten times more than those below the maximum bases. "The increase in social security contributions could generate economic changes (for example, a lower employment rate) that would reduce capacity to generate greater income for Social Security," the bank said in a statement.

More expenditure

The institution also considers that wages may be affected by the reform, since, as it means more expenditure for companies, they will in turn tend to contain the remuneration of their employees so as not to burden their margins with all the costs involved. The increase in revenue from the pension reform "could be lower if the higher labour costs have a negative impact on competitiveness, wages or employment".

The bank also disagrees with the figures drawn up by the Minister of Social Security, José Luis Escrivá. It estimates that the increase in contributions resulting from the pension reform could increase Social Security resources by around 0.6% of GDP in 2030 and 0.9% of GDP in 2050. The bank said that this is in the best case scenario, since these forecasts are made "ignoring the effects on employment and wages that could result from the increase in labour costs".

The Bank of Spain aligns itself with other bodies such as the Airef and Fedea, which recently warned that Escrivá's accounts are somewhat inflated and criticised the fact that they involve more expenditure than income.

"Unequal" impact

It also claimed that the pension reform will have an "unequal" impact on workers and companies, hardly affecting those earning below the maximum base, currently at 54,000 euros gross per year, and will not have a major impact on smaller companies, since they generally pay lower wages, while it will be workers with higher incomes and large companies that will be penalised the most.

The study estimates that those affected by the triple contribution will be approximately 1.3 million workers, 6.8% of the total, who are those who pay contributions at the maximum rate, and outlines the profile of this group. They are male, middle-aged to older, university graduates, employed by a large company and largely in the banking, consultancy, IT or health sectors.

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