Spain's 2019 minimum wage increase fostered more household spending
The increase in minimum wage in Spain in 2019 - one of the most significant in Europe in recent decades - had a significant effect on the consumption of Spanish households. This is revealed by a new study prepared by Hèctor Sala, professor in the Department of Applied Economics at the UAB, together with Ignacio González, professor at the American University in Washington, USA; and Pedro Trivín, professor at the University of Milan, Italy, which examines the effects of this reform, characterised by an increase of 22.3% in just one year.
This unprecedented increase translated into an average increase in local consumption of 4.5%, with discretionary spending being particularly strong. Electronics purchases grew by 20.2%, leisure spending increased by 11.7% and consumption in restaurants and hotels rose by 8.7%. According to the research team, the minimum wage increase allowed many families to expand their consumption and allocate a portion of their income to goods and services beyond their basic needs. At the same time, no significant negative effects on employment were observed, at least in the short term, which is the period covered by this study.
Both the analysis of local consumption and that of household consumption point in the same direction: consumption increased substantially and rapidly among households affected by the reform, and the increase was concentrated in discretionary goods and services. The results thus offer a new perspective on the effects of minimum wage policies. Beyond the employment debate, this study demonstrates that a minimum wage rise can substantially improve the welfare of lower-income workers, expanding their access to goods and services that were previously out of reach, as well as stimulating consumption at local level. The intensity of this impact, however, may vary depending on the context and conditions under which the measure is implemented.
The analysis is based on thousands of anonymous transactions with bank cards and payments at point-of-sale (POS) terminals, provided by Banc Sabadell, with nationwide coverage. In addition, the authors complement the analysis with household data from the Household Budget Survey of the Spanish National Statistics Institute (INE).
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