Banco de España
Un pacto de rentas en España: por qué y para qué
Pablo Hernández de Cos, gobernador del Banco de España

Agreement to limit wage increases and corporate margins: sharing losses to face inflation

Speech by the governor of the Bank of Spain analysing the economic consequences of the war in Ukraine and reviewing the different fiscal and monetary policies that are being carried out from an international and Spanish perspective. In Spain, the governor emphasizes the need to reach an income pact between economic agents (companies and households, but also Public Administrations) to distribute the loss of income in our economy derived from the increase in the price of energy raw materials.

Highlights of the Governor's speech:

  • High uncertainty: The consequences of the war are uncertain, and its economic impacts materialize through various channels: rising prices of raw materials (energy and non-energy), drop in household and companies’ confidence, market volatility... The Bank of Spain has revised downwards its GDP growth forecasts for 2022 to 4.5%, and to 2.9% in 2023, and upwards the expected inflation in 2022 to 7.5%, and up to 2% in 2023.

  • Need to accelerate European integration: According to the governor, the magnitude of the effects of the war will depend on the response of economic policies. In his opinion, a joint and forceful action at European level would be an optimal response in the EU, and progress should be made in a common and permanent fiscal capacity and in completing the banking union.

  • Fiscal policy role: It is constrained by high levels of public debt and structural public deficit. For this reason, it is important that fiscal policy act in a very granular manner, focusing on vulnerable households, companies and sectors, and with temporary measures that do not distort prices.

  • Need for an agreement to limit wage increases and corporate margins in Spain: According to the governor, the increase in the price of raw materials means a loss of income for our economy, which translates into a decrease in income for all. Companies and households, but also Public Administrations must assume this loss and agree on its distribution, to avoid price and cost increases. Otherwise, a simultaneous rise in price and wage levels would produce a loss of foreign competitiveness with negative effects on economic growth and employment.

- This distribution of costs between companies and workers is already taking place. On the one hand, the wage increases for 2022 in the union agreements up to March stood at 2.4%, so workers are suffering a loss of purchasing power while, on the other hand, around 82% of companies suffered cost increases in the first quarter of 2022, but only around 40% increased the selling price of their products. 

  • Recommendations for an income pact:

- To avoid automatic indexation of wages to inflation.

- Contemplate multiannual agreements concerning wage increases and employment protection, together with explicit commitments to moderate company margins.

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