US embassy cable - 04MADRID2453

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