Why the Bank of Spain believes raising the minimum wage will hurt job creation

The Bank of Spain has warned of the "collateral damage" the country's job market suffered the last time the minimum wage was raised, amid reports the Spanish government is considering revising this figure again and giving more rights to temporary workers.

Why the Bank of Spain believes raising the minimum wage will hurt job creation
Strawberry pickers in Spain: Photo: SAMUEL ARANDA / AFP

In its report published on Tuesday, the Bank of Spain wrote that after the increase in Spain’s Minimum Interprofessional Salary (SMI) in 2019, there was less growth in employment among those who earned the lowest wages. 

The last time the Spanish government increased the minimum wage to €900 in 2019, it caused the loss of between 98,000 and 180,000 jobs, El Banco de España wrote.  

The central bank of Spain explained that if this were to happen again, these negative consequences could be especially tough “on the employment of older people and will cause a reduction in hours worked and job creation for young people”. 

Spain’s top banking entity also indicated that after the rise in the mininum wage in January 2019, there was “a sharp drop in contracts with base wages less than or equal to €1,050”.

The report comes just after the Spanish government announced it was considering raising the minimum wage in 2021 by an amount which is yet to be confirmed, but which is expected to be between €50 and €250 more per month than the current base salary.

Spain’s current minimum wage is set at €1,108.3 gross per month. In reality, this equates to €950 a month, payable in 14 instalments to allow for the double monthly salary in July and December. 

This analysis by the Bank of Spain comes after the Organisation for Economic Co-operation and Development (OECD) criticised Pedro Sánchez’s government on May 27th after not having applied increases to the minimum wage “gradually” and for not having analysed the repercussions this has had on its employment.

“The process of setting the minimum wage could be modified with the creation of a permanent independent commission, in charge of evaluating its possible effects and preparing recommendations that allow a gradual modification of the minimum wage in line with the evolution of the conditions of the labor market and the productivity”, the OECD explained in its report to Spain.

The Bank of Spain’s report also indicated that the rise in the minimum wage would affect all age groups who are employed to a greater or lesser extent.

For those under 33 years of age there is “an important and significant increase in the probability of going from full time to part-time”. Among young people between 16 and 24 years old, the report stated that “the probability of being employed full time is reduced”. And with regards to the elderly, in most cases, they become unemployed.

According to the Bank of Spain, it’s the young people who will be the most negatively affected by this rise when it comes to finding work.

Unlike what happens with job loss, which affects older people, the most damaging effects are on those trying to find a job in the first place, especially those under 24 years of age.

The report estimated that there will be a reduction in job creation of 1.9 percent for those between 16 and 24 years old and of 1.2 percent for those between 16 and 64 years old.

The young are also the group most affected by unemployment. According to the latest government figures, this stands at around 39.9 percent and is the worst in the EU. 

The Spanish government is also currently trying to address the precariousness of the country’s job market by shortening the maximum length of temporary work contracts to six months so that temporary employees can access fixed positions sooner.


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‘Hard to stay afloat’: Is working for an English language academy in Spain worth it?

It's the go-to work option for countless anglophones in Spain, but is teaching at an English language academy still enough to pay the bills in a climate of rising prices, stagnant wages and a shift to online learning platforms?

'Hard to stay afloat': Is working for an English language academy in Spain worth it?

Traditionally seen as a type of gap-year experience for recent graduates and/or those seeking adventure before settling down to a more traditional career path, English language teaching in Spain has becoming increasingly popular as a long-term career.

A high quality of life, a more favourable climate and generally lower living costs have always made Spain a popular destination for English language teachers, with Spain posting the highest number of job advertisements for teachers among European countries.

As a result, many of those working in the industry see it as somewhere to further both their professional and personal lives.

However, poor job security, stagnant salaries and issues surrounding the long-term sustainability of language academies have plagued the sector for years.

The recent impact of the Covid-19 pandemic and the current rise in inflation has further compounded these issues, with many teachers considering their long-term careers in Spain.

Teachers working for private language academies in large cities such as Madrid, Barcelona, Valencia and Sevilla can expect to earn between €800 to €1,400 a month after tax for about 20 to 30 hours of class time per week.

One teacher told The Local Spain that despite working as a profesor de inglés for almost a decade, his academy salary had gone down dramatically in real wage terms, following a salary cut during the pandemic which made it “hard to keep my head above water”.

“I was working as a teacher for nine years but felt the need to leave the profession as the hours I needed to work were affecting my mental health. During my first three years in Spain, I was able to get by on my salary. Since then, I have increased the number of private classes gradually, I save the same a month as I did when I first moved here, but have to work an extra eight hours a week to be in that situation”.

READ ALSO: The pros and cons of being an English language assistant in Spain

As of 2022, the minimum monthly salary stands at €1,166 gross for a 40-hour working week, meaning that someone working as an English teacher can expect to earn more or less the minimum wage based on their contact hours, with many opting to teach privately in order to supplement their income.

In addition to this, most teachers are hired on short-term indefinido contracts, meaning that they only earn a monthly salary for nine months of the year, resulting in many taking on summer work to maintain a year-round monthly income.

While short-term informal contracts and a relatively manageable monthly salary may have appealed to single, twenty-somethings seeking a few years of fun and adventure in Spain, for those looking to support a family or get on the property ladder the precarious economic reality of English language teaching has seen many reconsider their long-term career goals.

“I rented when I initially moved here but now I’m paying off a mortgage which has gone up due to interest rate rises,” another English teacher told The Local Spain. 

A traditionally in-person industry, the pandemic forced many academies online and, due to increased competition from online language learning platforms along with a paradigm shift in terms of hybrid and remote study and work, academies have struggled to replace students lost to this new language learning environment.

As a result of this, some teachers have seen their weekly teaching hours reduced as academies simply cannot guarantee a full schedule, putting further financial pressure on teachers.

teaching english spain

Poor job security, stagnant salaries and issues surrounding the long-term sustainability of language academies have been plaguing the industry for years in Spain. Photo: Thirdman/Pexels

One teacher with over seven years working experience for a large English academy in Madrid told The Local that “a few years ago our company began the long process of trying to cut our supplements and basic wage”.

“We were backed up by our comité, (representative group) but after about a year of negotiations, reductions (and redundancies) were made. At the time it cut about €250 from my meagre wages.”

As is the case across Europe, the level of inflation in Spain has risen sharply to about 10.5 percent as of September 2022. Combined with rising energy prices, more and more teachers are finding it increasingly difficult to live off a salary in some cases of just over €1,000 a month.

With the average cost of renting a room ranging from €400 to €500 in large cities, some teachers are choosing to cut costs in terms of their living standards to make their salaries stretch further.

Another teacher told The Local how “while I still go out at the weekend and buy the food I want at supermarkets, the increase in rental prices has meant that I’ve stayed in a less-than-ideal room, rather than finding a better room – due to not wanting to pay significantly more in rent”.

While the challenges facing English teachers in Spain are not unique to their line of work, this latest set of drawbacks should be factored in by anyone considering making a move here or teaching long-term.

Such economic realities are difficult to ignore, but that’s not to say there isn’t a lot English teaching can offer someone looking to gain some valuable work and life experience while also enjoying the hustle and bustle of life in Spain.

Article by Cormac Breen