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Bank of Spain says wage devaluation much greater than official figure

Source: El Pais - Fri 28th Feb 2014
Bank of Spain says wage devaluation much greater than official figure

The Bank of Spain has estimated that wages in Spain have fallen by double the amount indicated by official statistics as the massive loss of lower-quality, poorly paid jobs inflated the weight of higher-quality, better-paid work in the calculations.

The central bank's conclusions would have already been self-evident to millions of Spanish households finding it increasingly harder to get by on what they earn, in the cases of those lucky enough to still have a job.

In a special section included in its monthly economic bulletin for February, the central bank said between 2008 and 2012, when the jobless rate climbed from 8 to 26%, the ratio of workers with lower levels of education, training and skills fell from 14.8% of the total workforce to 10%.

The weight of workers with less seniority in companies also fell because employers let go staff on temporary contracts first as a result of the duality of the domestic labor market in which severance costs for permanent staff with many years of services are considerably higher. Specifically, the ratio of employees with more than 3 years of service increased from 61.7% of the total in 2008 to 73% in 2012.

The other element that skews the figures is that the weight of young workers in the total workforce fell by 9 percentage points over the period as the youth jobless rate climbed above 50%.

The report said "these very pronounced changes" in the composition of the workforce have produced "really significant statistical effects" that explain a "part of the increase in real wages that was observed at the start of the crisis."

Wage devaluation has been a key factor in the recent boost to the Spanish export sector The bank said these factors "need to be taken into account when it comes to carrying out an accurate analysis of the performance of labor costs." In order to do so, the study carried out by the Bank of Spain focused on the wages of the same group of workers during the crisis as a representative sample of the whole.

The study concludes that after rising from 2006, wages entered a progressive phase of moderation, an observation that coincides with the data included in the National Accounts statistical series. From 2008 onwards, the changes in the makeup of the labor force were so strong that they began to skew the official figures in such a way that they failed to reflect wages were falling in 2010. "The process of wage moderation that began in 2010 is somewhat stronger than that indicated by aggregate statistics on labor costs," the study concludes.

In graphs accompanying the study, the Bank of Spain calculates that while official statistics show that the average fall in real wages in 2012 was 1%, the actual figure after correcting for the impact of the changes in the composition of the labor force was above 2%.

According to figures from the National Statistics Institute (INE), wages fell for the first time in the fourth quarter of 2012. The size of the fall was 3.6%, reflecting the government's decision to eliminate the traditional end-of-year monthly bonus payment to civil servants as part of its austerity drive. The final fall in the latest period reported, the third quarter of last year, was a more modest 0.3%.

Despite the evidence, the government was slow to acknowledge the loss of spending power of workers, with Finance Minister Cristóbal Montoro in October of last year denying that wages had fallen.

So-called wage devaluation has been a key factor in the recent boost to the Spanish export sector, which helped pulled Spain out of its longest recession since the restoration of democracy in the third quarter of last year as domestic demand remained in the doldrums.