The most common salary in Spain only exceeds the SMI by 3%, according to the Juan de Mariana Institute

The gap between the minimum interprofessional salary (SMI) and the most common salary in Spain (known as the modal salary) has been reduced “drastically” between 2018 and 2023, going from 40% to 3% due to the loss of purchasing power of the middle and working classes, as can be seen from the report ‘Wage equality and economic impoverishment’ by the Juan de Mariana Institute (IJM).

This way The ‘gap’ has gone from exceeding 8,000 euros to being just over 400 euros in this period due to the salary policies of the current Government, which have caused the SMI to go from being around 10,000 euros per year in real terms to almost 13,370 euros, which represents an increase of 26%.

At the same time that the SMI has risen, the most common salary has fallen since 2018 as from representing almost 18,000 euros once inflation is discounted to representing just 13,800 euros in 2023. In constant euros, the differential between SMI and the most frequent salary has gone from 6,800 euros in 2018 to be practically equal in 2023.

From the Juan de Mariana Institute, they have explained this convergence by the loss of purchasing power of the middle class and working class and not because Spain has become a more prosperous country that pays better to those who earn the least.

“What has happened is that Salaries in the central section of the distribution have lost purchasing powerbased on being essentially stagnant in a context of low productivity, high inflation and little economic dynamism. All this while the minimum wage has risen sharply by decree,” he explained.

The increase in the SMI has been especially demanding for companies dedicated to most labor-intensive sectors, like the hospitality, commerce, cleaning or auxiliary serviceswhich operate in areas of the country where income levels are lower.

In 42 provinces the SMI exceeds 60% of the average salary

By territory, the SMI is above 60% of the average salary in 42 of the 50 Spanish provinces and, in fact, it exceeds 75% in 34 of these territories. Thus, in 2024, the provinces where the minimum wage represents a higher percentage of the average wage are Ávila (78.7%), followed by Zamora (77.3%), Badajoz (75.8%), Murcia (75.7%) and Alicante (74.2%). Regarding the weight of the SMI on the average salary paid by small and medium-sized companies, the province with the highest incidence would be Ávila (90.8%), followed closely by Zamora (89.1%), Badajoz (87.3%), Murcia (86.7%) and Alicante (85.4%).

At the regional level, Extremadura would be the most notable case: in this region, the minimum wage represents 72.8% of the average regional salary. Furthermore, very high thresholds are reached in the Canary Islands (68.5%), Murcia (67.4%), Andalusia (66.5%) or Castilla y León (65.9%).

About 270,000 fewer jobs until 2024

The Juan de Mariana Institute has indicated that the increase in the SMI applied in nominal terms caused a total negative impact on the labor market equivalent to the destruction of up to 174,000 jobs throughout 2019.

However, The cumulative effect of job loss between 2019-2023 reaches 210,000, with the estimate that this figure would reach the threshold of 270,000 throughout 2024.

On the other hand, according to the Institute, The Government is doing “statistical makeup” and “creative accounting“, since a drop in unemployment of 600,000 people is attributed, when the decrease is only 70,000, since the reclassification of non-active discontinuous permanent employees as employed accounts for almost 90% of the improvement reported by the Executive.

The increases in the SMI act as an “impoverishing ceiling”

From the Juan de Mariana Institute they have stated that the result of this minimum wage policy is not, at all, a general improvement in salary conditions, but rather a “flattening of the salary structure by the base” and that raising it in accordance with “political guidelines” makes the SMI go from acting as a “lever for improvement” to acting as an “impoverishing ceiling” with negative effects for the majority of the labor market.

In this sense, he has warned that when the minimum wage approaches the most frequent wage, incentives for professional improvement, training and job promotion disappearl, because the salary reward for progress is reduced while social mobility is weakened, labor-intensive sectors are put under pressure, the informal economy is encouraged and the creation of stable employment is made difficult, especially among young people and less qualified workers.

“Spain needs to improve its salaries, but trying to achieve it by decree is a profound mistake. The possible alternative is to a model that rewards productivity, facilitating a context of activity and growing incomes,” he explained.