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Spanish wages fail to keep pace with inflation and rising cost of living

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The OECD says inflation has wiped out much of the benefit of recent pay rises, leaving many workers with less spending power than before the pandemic

Spain has become one of Europe's fastest-growing economies, yet many workers are still finding it difficult to get ahead. According to the OECD, wages have failed to keep pace with inflation, while unemployment and insecure work continue to cast a shadow over the labour market.

The latest report from the Organisation for Economic Co-operation and Development (OECD), published on July 7, says Spain still has the highest unemployment rate of any OECD country. It also ranks among the countries where real wages have fallen the most since the Covid-19 pandemic, with little sign that workers' spending power will fully recover any time soon. While the use of temporary contracts has dropped sharply since the 2021 labour reform, Spain still relies on them more than many comparable economies.

The OECD's 392-page report says 'limited wage growth remains Spain's weak point'. According to the report, real wages increased by around 2% over the past year, but they are still 2% lower than they were in the first quarter of 2021.

Basically, many workers may be earning more than they did a few years ago, but that extra money is not stretching as far. Rising prices have cancelled out much of the benefit of recent pay rises, leaving many households with less spending power than they had before the pandemic.

The OECD also warns that real wages have barely moved for much of the workforce. It says average earnings have improved mainly by repeated increases to Spain's national minimum wage, which have helped protect the country's lowest-paid workers from inflation. Pay for many other employees, however, has risen much more slowly.

The outlook is not much brighter. The OECD says workers are unlikely to regain the spending power they have lost during 2026 or 2027. It argues that the economy is not generating enough extra value to support stronger wage growth, something that depends on factors such as business investment, new technology, and innovation. Renewed inflationary pressures linked to the conflict in the Middle East are also expected to keep prices high.

If that proves to be the case, Spanish workers will have gone at least seven years without regaining the spending power they lost during the pandemic.

A different picture behind the figures

The OECD also takes a more measured view of the government's labour reforms.
It accepts that the 2021 changes made it much harder for employers to rely on temporary contracts, helping to reduce the gap between permanent and temporary workers. The proportion of employees on temporary contracts has fallen from almost 25% at the beginning of 2022 to just under 15% in early 2026.

However, the organisation says that doesn't tell the whole story.

Spain still has a higher level of temporary employment than most comparable countries, and moving people onto permanent contracts does not automatically mean they have more secure jobs.

One area the OECD points to is the growing use of fijos discontinuos (discontinuous permanent contracts). These are classed as permanent contracts, but workers can still go for long periods without work or pay between periods of employment.

The OECD says some of the insecurity that previously existed under temporary contracts may have shifted into these types of permanent contracts. In other words, the legal status of many jobs has improved, but that doesn't always mean workers enjoy a steady income or year-round employment.

Employment figures from Spain's public employment service (SEPE) support that view. Permanent contracts have increased significantly since the reforms, rising from around 28% of all new contracts in June 2022 to more than 41% by June 2026.

But much of that increase has come from discontinuous permanent contracts, which have also grown steadily over the same period. So while the official figures show more permanent jobs, a sizeable number of those workers still face gaps in employment throughout the year.

For the OECD, that is the main issue. Temporary contracts may have fallen sharply, but for some workers, job security has improved more on paper than in everyday life.

Adding to those concerns is Spain's unemployment rate, which remains above 10% and more than double the OECD average. Although Finland has now overtaken Spain as Europe's highest, the OECD says unemployment and low wages remain the country's biggest economic challenge.

Read also:Trump vows to cut all trade with Spain, claiming it is 'a Lost Cause'

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