The OECD believes that company profits give room to further raise wages

The OECD maintains that the profits obtained by companies in the last year leave room to raise wages more, especially for workers who are paid less. This is clear from the annual report on employment published by the institution on Monday, in which the group's experts describe how the labor market has behaved in terms of employment, unemployment, wages in the last year and its future prospects.

The report finds that corporate profits have grown above the remuneration of employees in most countries. This happened in 33 of the 38 OECD countries (including Spain) between the fourth quarter of 2019 and the first of this year, according to the researchers.. This expansion of benefits has been particularly noticeable in the energy sector, but also in hotels, accommodation and manufacturing.

Thus earnings “have made an unusually large contribution to domestic price pressures”. Companies have been able to increase profits thanks to the unusual circumstances that have arisen after the pandemic. The reopening after the covid and the effect of the recovery plans that many countries have applied triggered demand.

At the same time, prices grew rapidly due to external factors (higher prices of energy and raw materials). This allowed many producers “to be able to adjust prices quickly, while wage increases tend to take longer negotiation periods,” says the OECD.. All this suggests that the costs of the crisis “have not been distributed equally among all”.

The report sees no indication that a wage spiral is taking place. A perverse economic phenomenon that occurs when salaries rise rapidly and force companies to raise sales prices, which, in turn, motivates new wage demands. The OECD is clear in this regard. “The evidence suggests there is room for benefits to absorb additional wage increases, at least for low-wage workers”. All this, “without generating significant pressure on prices or causing a drop in the demand for labor.”

The OECD conclusions are added to what other organizations such as the European Central Bank (ECB) have recently defended.. The ECB found in a recently published report that unit earnings have grown strongly in recent quarters and have made a visible contribution to eurozone inflation.

Wages resist better in Spain

The panorama of generalized loss of purchasing power that the OECD portrays has been somewhat more benign with Spain. The data compiled by the researchers indicate that Spanish wages have been among the least devalued in the EU. Specifically, Spain is the fourth country of the community club where the difference between wage increases and price increases has been most reduced.

The loss of purchasing power of Spanish wage earners is 1.2%, three times lower than the OECD average. In the EU, only Belgium, the Netherlands and Greece suffered lower purchasing power losses than Spain. And among the large European economies, such as France (1.8%), Germany (3.3%) or Italy (7.3%), the loss of purchasing power was much more pronounced.

Part of this resistance to inflation is the result of the significant increases in the interprofessional minimum wage (SMI) undertaken in recent years. In Spain it is among the OECD countries where the SMI has grown the fastest. To the extent that the minimum wage has retained its purchasing power better than the median wage. In this regard, the OECD points out that the Spanish labor market “has shown itself to be resilient” with an increase in employment of 1.2% in the first quarter and the lowest unemployment rate in decades (12.7%).

The OECD maintains that the labor reform has contributed to improving the quality of employment in Spain, but shows some doubts with the hiring of discontinuous permanent. In this sense, they point out that the effectiveness of the permanent discontinuous contract to improve the job security of workers is still uncertain.. Therefore, they recommend continued monitoring and potentially stricter regulation to ensure further progress.