Spanish Left-Wing Government Tries to Appease Businesses but...

Concerns from Companies Over the Abolition of Labor Market Flexibility

Companies Voice Their Worries

▲Nadia Calvi?o, Spanish Deputy Prime Minister for Economy [Image source=EPA Yonhap News]

[Asia Economy Reporter Kwon Jaehee] The Spanish government, which had previously emphasized pro-labor policies, has recently begun efforts to appease businesses. This comes after the left-wing Spanish government, which took office earlier this year, pushed forward labor reforms centered on raising the minimum wage and abolishing labor market flexibility, prompting companies to express serious concerns. Nadia Calvi?o, Spain’s Deputy Prime Minister and Minister of Economy, stated that gradual labor reforms through labor-management agreements would be pursued, but companies’ worries have not been easily alleviated.

In a recent interview with the media, Deputy Prime Minister Calvi?o emphasized, "We will achieve gradual and consensual labor reforms" and added, "To avoid threatening job creation, we will strengthen social dialogue over several years." Her remarks are interpreted as an attempt to dispel concerns from investors and companies about the new government’s policy direction. Earlier this year, Spain’s new coalition government, formed by the center-left Social Labor Party and the radical left Podemos, announced policy goals including wealth taxation, additional minimum wage increases, and the repeal of labor market flexibility.

The new government plans to raise income tax for high earners making over 130,000 euros (approximately 170 million KRW) annually and set a corporate tax floor at 15%. It is also considering a so-called "wealth tax" requiring banks and energy companies to pay an 18% corporate tax. Furthermore, following the previous government’s 22.2% increase in the minimum wage to 1,050 euros (about 1.35 million KRW) per month, the minimum wage was raised by another 5.5% effective January 1 this year. As a result, over 2 million workers will receive 1,108 euros (about 1.43 million KRW) per month. The new government also plans to further raise the minimum wage to 1,970 euros (about 2.53 million KRW) by 2024, which is approximately 60% of the average monthly salary of workers.

Additionally, the government announced plans to repeal labor flexibility measures introduced by the right-wing government in 2012, including expanded employer rights to dismiss employees.

As the new government continues to introduce anti-business policies, companies have voiced their dissatisfaction. The Confederation of Employers and Industries of Spain (CEOE), the country’s largest business organization, expressed concerns that "policies close to populism will have very negative effects on the Spanish economy, including hindering job creation." Banco Bilbao Vizcaya Argentaria (BBVA), Spain’s largest bank, warned that the minimum wage increase would slow job creation. The Bank of Spain also estimated that the minimum wage hike could reduce jobs by 150,000.

Spanish economists have also opposed the new government’s policies, arguing that Spain’s economic recovery was largely due to labor flexibility policies that reduced severance pay and prioritized employers.

In fact, Spain’s unemployment rate exceeded 25% during the economic crisis starting in 2010. The right-wing governments that ruled during that period took pro-business steps such as expanding employer dismissal rights, contributing to the creation of 2 million jobs between 2014 and 2018. By the end of 2018, Spain’s unemployment rate had fallen to 14.4%, the lowest in a decade. However, signs of economic downturn reemerged in 2019, with economic growth slowing to 2%.

Deputy Prime Minister Calvi?o reiterated, "The government’s goal is to focus on sustainable growth, achieve fiscal balance, and at the same time avoid threatening job creation."

This content was produced with the assistance of AI translation services.