Delivering the Bank of Spain’s annual report Friday, Governor Luis Maria Linde urged the federal government to take a series of measures rather than just implementing budget cuts in order to jumpstart the economy.
The recommendations consist of selling off two nationalized financial institutions, fasten the planned increase in the retirement age from 65 to 67 and to suspend or completely remove the minimum wage for certain workers and in some cases. All of these seem like economic sense, but could prove difficult to garner support from the Spanish people and public leaders.
Since the economic collapse, Spain has suffered tremendously and its economy has fluctuated greatly in the last five-plus years. Any sort of economic expansion – moderate at best – isn’t expected until later next year.
“The gravity of the situation on the labor market advises to maintain and deepen the reform drive through new measures boosting job creation in the short term and making wages more flexible,” the report stated. “The successes due to the labor law in internal flexibility and moderating wages are positive. But the effect on boosting new hires is insufficient, even though this is very likely an area where the measures need more time be fully effective.”
Spain suffers from the second-highest youth unemployment rate with 56 percent (Greece is first with 62.5 percent) – the overall unemployment rate is more than 27 percent. Economists and the central bank officials have called for offering lower wages for those aged 25 years and under because it is argued that minimum salaries shouldn’t “act as a barrier.”
The minimum wage in Spain presently stands at 645 euros ($835) each month.
Last week, ministers from France, Germany and Italy gathered at a conference in Paris in which they agreed that if the youth unemployment issue is not solved then young people will eventually lose confidence in their governments and the EU.
“We now have to rescue an entire generation of people who are scared,” said Enrico Giovannini, Italy’s labor minister. “We have the best ever educated generation in this continent, and we are putting them on hold.”
Perhaps Spain could be heading in the right direction if they remove the minimum wage. For years, it has been argued that minimum wage is one of the worst policies against the poor and minorities. By placing a minimum wage, it hurts the uneducated, the unskilled and inexperienced from obtaining a job. This is so because if a business is forced to pay a certain wage then it will be forced to discriminate the unfortunate for those who have the necessary skills, credentials and experience to perform the duties of the job.
Any increases in the minimum wage just benefit a few and hurt a lot. This is why unions are always advocating for higher minimum wages because they personally benefit from them, while big businesses call for an increase in the minimum wage because it hurts their competitors.
Nevertheless, Prime Minister Mariano Rajoy, who recently received pressure from the European Union and Organization for Economic Co-Operation and Development (OECD) to undergo various reforms, has not commented on the report as of yet. However, according to the Wall Street Journal, Deputy Prime Minister Soraya Sáenz de Santamaría said the government would consider the bank’s proposals but draw up its own conclusions.