Spain is more than a year and a half behind efforts to curb rising salaries. Only in 2010 did labor unions take the reins and agree on a three year period of pay moderation. But the second economic collapse is weighing down macroeconomic indicators once again (e.g., the Consumer Price Index) and making the previous moderation agreement obsolete. Surely, pay will rise faster than prices at some point. Several weeks ago employee organization president Joan Rosell warned that the second tsunami lead to price hikes.
The CEOE forecasted that there will be 2% inflation in 2012. While the pay agreements recommend that salaries increase by 1.5%-2.5%. Further, these percentages are not always interpreted or applied literally. Increments ultimately end up higher. Going into 2011, increases touched 3%, despite the fact that recommendations for the year neared 2% increases.
Employee organizations think that with closed credit markets and lax domestic demand, Spanish companies will not be able to tolerate increased salaries and inflation simultaneously. The same scenario happened in 2009, when salaries increased more than 2% while inflation rose at 0.8%. Even for months when prices fell (-1.4% in June), workers benefited from pay raises greater than 2.7%. Payroll adjustments followed as a result, until more than 600,000 people were laid off in just a year.
