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Spain's workers suffer in new mean, lean economy

AFP · 26 Nov 2013, 09:30

Published: 26 Nov 2013 09:30 GMT+01:00

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An 11-day work stoppage this month by Madrid street sweepers, which left the Spanish capital strewn with litter, was a striking example.

Employees were protesting a plan to axe 1,100 of the 7,000 street sweeper jobs and to slash the salaries of those remaining by up to 40 percent.

The staff, employed by private firms working for the city, won a deal that entails no job losses but less money, with a 45-day unpaid furlough each year.

At Catalan doughnut manufacturer Panrico, the 1,914 workers initially signed a draft agreement for 745 layoffs and an 18-percent salary cut but finally decided this weekend to reject it.

The background to both cases is the fear of joining a queue of six million people seeking work.

"With 26 percent of workers out of a job, this mass of unemployed people serves as a reserve army, putting downward pressure on salaries," said Fernando Luengo, economist at Madrid's Complutense University and a member of the EconoNuestra think tank.

Wielding a "Sword of Damocles", firms can easily threaten workers to accept worse conditions or be fired, he said, with latest labour market reforms making it cheaper to lay off employees.

A few years ago, Spaniards fretted about the fate of unfortunate "thousandaires" -- people who earned just €1,000 a month, Luengo said.

"Now, for many people having a salary of €1,000 is almost a luxury," he added.

Paloma Lopez, employment secretary of major Spanish union CCOO, said some 60 percent of Spanish workers now earned less than €1,000 a month.

"They have major difficulties because you still have to pay the mortgage despite everything," Lopez said.

"You see it everywhere: in the streets, small businesses that have not shut yet are in trouble," she added. "Spanish employees have stopped consuming."

According to the National Statistics Institute, average household incomes tumbled by 9.5 percent between 2008 and 2012, and 21.6 percent of the population is at risk of falling below the poverty line.

The research arm of Spanish bank La Caixa estimates that Spanish salaries have fallen by 7.1 percent since 2010.

The Foundation of Applied Economic Studies, FEDEA, estimates that salaries declined by 12 percent between 2010 and 2012.

Wage cuts an 'internal devaluation'

Prime Minister Mariano Rajoy's conservative government refers to the process as an "internal devaluation" necessary to regain competitiveness.

Previously, "whenever there was an imbalance it was always fixed by devaluing the peseta," said Ignacio de la Torre, analyst at financial consultants Arcano.

"Since we can no longer devalue the currency, the only way to rebalance the economy is to devalue salaries," he added.

From the purely economic point of view, it is a recipe that seems to work.

"Spain has become ultra competitive in terms of salaries," the consultant said, with workers earning one-third less than the eurozone average.

Story continues below…

In September, Spanish exports leapt by 8.3 percent, eight times more than the eurozone average.

In the automobile industry, factories are bustling and releasing new models, often thanks to agreements struck with unions to keep salaries in check.

Patrick Artus, of the French investment bank Natixis, said the "salary cost advantage" could help Spain become a key production centre for mid-range industrial products in Europe, making it "the China of Europe".

The International Monetary Fund has encouraged Spain to go further, suggesting a 10-percent cut in salaries over two years would boost gross domestic product by five percent.

But socially, "it is bad news", said Carlos Obeso, director of labour market studies at the ESADE business school.

For proof, Obeso said, "you don't need to be an economist, just go out into the street."

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