SPAIN INCREASES MINIMUM WAGE MIDYEAR

UNCLAS MADRID 002453

SIPDIS

TREASURY PLEASE PASS TRACI PHILLIPS

E.O. 12958: N/A
TAGS: ECON EFIN SP
SUBJECT: SPAIN INCREASES MINIMUM WAGE MIDYEAR


1. The Spanish Council of Ministers approved June 26 a 6.6%
increase in the minimum wage to EUR 490.80 (USD 599.34) from
EUR 460.50 (USD 562.40) per month. The new wage will be
effective July 1. This increase will affect 600,000 workers.
The increase in cost to the Spanish government is predicted
to be EUR 252 million (USD 307 million) per year due to
increased government salaries and unemployment benefits.
Even with the increase, Spain will continue to have the
second lowest minimum wage of EU-15 countries, followed by
Portugal.


2. While the minimum wage is usually set annually in the
national budget bill, the Socialist government decided to
increase the wage mid-year to return the minimum wage to
parity with the inflation rate. The minimum wage has risen
2% per year since 2000. The consumer price index has risen
faster than the minimum every year since 1999, resulting in a
de facto 6% decline in the minimum wage. The 6.6% increase
will be the first increase in the real minimum wage since

1999.


3. The Council of Ministers' decision was made by Royal
Decree (equivalent to an Executive Order),and was not
discussed in the legislature. It is a temporary measure
until the government introduces legislation to change the
many related laws. The Socialist administration publicly
reaffirmed its commitment to raise the minimum wage to EUR
600 (USD 732) per month by 2008, prior to the next election.


4. The Royal Decree also decoupled the link between the
minimum wage and certain social benefits. Previously the
minimum wage was used as the base figure for computing
several types of public benefits including scholarships,
schoolbook subsidies, food assistance and access to public
housing. These services will now be linked to a new figure,
IPREM (Indicador Publico de Rentas de Efectos Multiples),
which will be set at the old minimum wage of EUR 460.50 (USD
652.40) per month, and will continue to be set each year in
the national budget bill, based on projected inflation rather
than real inflation rates. Unemployment benefits will
continue to track with the minimum wage.


5. Comment. The EUR 30 (USD 36.6) per month increase in the
minimum wage allows the Socialist government to show that it
is keeping up with some of its campaign promises in pragmatic
fashion. The GOS can claim that they are moving towards the
EUR 600 (USD 732) per month promise incrementally, and the
delinking of the minimum wage with benefits prevents the
change from being too costly.
ARGYROS