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Wage cuts causing Spanish households to struggle, warns OECD

New report says Spain is over-reliant on temporary jobs but lauds its efforts to reduce unemployment

Cuts to the annual average wage of around 2% triggered by the economic crisis have caused Spanish workers and families to struggle to make ends meet, a study by the Organisation for Economic Co-operation and Development (OECD) has found.

In its 2014 Employment Outlook report, released on Wednesday, the international organization adds that the reductions have also improved productivity and external competitiveness.

While the crisis has meant the loss of many jobs, even those who managed to remain in employment have effectively seen their real earnings slow down or even fall, the report says. Spain has seen some of the steepest wage cuts among developed countries at an average of 2% a year – the same level as Slovenia or Ireland, and surpassed only by Greece at an average of 5%.

Overreliance on temporary work is damaging to individuals and the economy, the report notes

Stefano Scarpetta, director of employment at the OECD, said wage adjustment has extended throughout the euro zone, with an average annual reduction of 0.1%. Before the crisis, wages were growing at a rate of 2.1%.

Scarpetta recalled that labor costs in Spain shot up with the introduction of the euro in 2002, largely surpassing the increase in productivity. “That gap has been partly absorbed during the crisis,” he said.

But those wage freezes or cuts could have “serious repercussions on household income, exacerbating economic difficulties,” he added. “New wage adjustments in countries most affected by the crisis could end up being counterproductive, and in a context of near-zero inflation, could have a limited effect in terms of job creation. These adjustments would accentuate the risk of poverty and weigh down global demand.”

The OECD is also concerned about the large number of temporary jobs in Spain. Before the crisis, 32.9% of all new contracts were permanent, but that figure has dropped to 24.5%.

“Over-reliance on temporary work is damaging to individuals and the economy,” notes the report.

Spain will post the best unemployment reduction rate between 2014 and 2015 (-2.2%), but the jobless rate will still hover around 23.9% by the end of next year, a figure that is set only to be surpassed by Greece with 27%. The euro zone average is 11.6% while the US average is 6.2%.