Spain hikes the minimum wage.
Since Spain’s Socialist prime minister Pedro Sánchez took power in 2018, the country’s minimum wage has increased by 66%. Announced in February, the latest hike to the Spanish Minimum Interprofessional Wage (SMI) was agreed on by the Spanish government and two biggest labor unions, the UGT and CCOO, taking it to €1,221 per month. Sánchez said that raising the SMI, which is received by about 2.5 million workers, around 11% of Spain’s workforce, was a “matter of social justice and economic intelligence, which refutes those who predicted the disaster of any economy in the face of a minimum wage increase.”
This is a classic straw man argument. None of Sánchez’s opponents predicted that a 3.1% hike in the SMI this year would be a disaster for the economy. Driven by its world-class tourism industry, Spain’s GDP has been the fastest-growing in Europe for several years, and in 2025 expanded by 2.8%, almost double the EU average. But this stellar macroeconomic performance conceals deep-rooted structural problems that have not been alleviated by repeated raises to the SMI.
This shouldn’t be surprising. Though introduced to improve the lives of society’s most vulnerable workers, mandated minimum wages often have the opposite effect, especially if increased at the rate seen in Spain over the previous six years. When labor becomes more expensive, companies, in particular smaller ones, try to reduce their staff bills, either by cutting hours or laying people off. Often, they fire the least-skilled in order to retain the better-skilled. That’s if they choose to pay the minimum wage at all, which is far from guaranteed in sectors with the highest concentration of workers on the SMI.
In Spain’s lowest-paid industries, exploitation is widespread. The UGT and CCOO have repeatedly warned about the prevalence of labor law violations in the hospitality sector, the engine of Spain’s tourism industry—including summary dismissals after “trials,” insufficient rest periods, and misleadingly-attractive salaries calculated on forced overtime. It is also common practice for bars and restaurants to pay staff for a 40-hour week regardless of how many hours they actually work—which means, of course, that they end up receiving much less than the SMI. In 2023, the unions said that exploitation in the Balearic Islands, one of Spain’s busiest tourist hubs, had reached “chronic” levels.
Hotel cleaners and agricultural workers, especially the fruit-picking migrants who work in Almeria’s “Sea of Plastic,” are also prone to exploitation. Most of the latter live in shantytowns among the greenhouses and work in dangerous conditions for much less than the SMI. Unless there is greater scrutiny of employers’ practices in these sectors, it’s naive to believe that this year’s SMI-hike will translate into €518 more per year in workers’ pockets, as the government claims.
Spain’s main employers’ associations, the CEOE and CEPYME, have expressed concerns about the rate at which Sánchez is increasing the SMI—yet this is the sixth hike passed without their approval. Their main objection is that small and medium-sized businesses (SMEs) in sectors which have the most employees on the SMI—typically agriculture, care-giving, and hospitality—cannot afford escalating labor costs, which are estimated at €1.7 billion this year. CEOE and CEPYME also oppose what they describe as an “interventionist” feature of the new legislation, according to which companies will be given tax breaks for paying the minimum wage. The employers’ associations predict that the majority of SMEs won’t meet the criteria for these deductions, the promise of which “represents a further intrusion [by the government] into collective bargaining and the freedom of enterprise.”
Six raises to the SMI in as many years have had no noticeable impact on Spain’s biggest structural problems. Though unemployment dipped to 9.93% in the last quarter of 2025, the lowest for 18 years, it is still among the worst in the EU. Spain also has Europe’s highest youth unemployment rate, at 23.4%—a figure that never substantially changes.
There is also an over-reliance on seasonal work and temporary contracts, although labor reforms passed by Sánchez’s government in 2021 have reduced the severity of this problem. Still, a recent report by the anti-poverty charity Caritas found that almost half of Spain’s workforce lives with some kind of job uncertainty, and that over one third of people living in moderate or severe exclusion are employed. Clearly, a state-imposed minimum wage, by itself, doesn’t translate into better lives for the lowest earners.
Another problem is stagnant productivity, despite the creation of over half a million new jobs last year. According to the Bank of Spain, productivity among the Spanish workforce has remained between 10% and 15% lower than the EU average since 2008. More effective state investment, combined with reduced regulation, would help increase productivity, as a result of which the value of labor would rise—a more sustainable way to boost wages than mandating a bottom line.
Spain’s labor minister Yolanda Díaz has claimed, ridiculously, that the minimum wage “destroys poverty.” But for the last four years, around a quarter of Spain’s adult population has lived at risk of poverty or social exclusion. That figure rises to 1 in 3 among children, making Spain the worst country in Europe for child poverty. The Caritas report cited above found that Spain is experiencing “unprecedented social fragmentation,” and that 4.3 million people live at risk of severe poverty or exclusion—52% more than 2007, the year before the financial crisis. According to Statista, Spain is one of the most unequal nations in Europe, and income equality is “forecast to remain identical in the near future.”
Then there’s the gender pay gap. Though this has been reduced by 52% over the last quarter-century, Spain’s Ministry of Finance estimates that it will take two more decades to close completely. A recent study published by the USO union found that women in Spain earn around 19% less than men on average, equivalent to 69 unpaid days a year. Women represent 55% of the lowest earners in Spain, 43% of whom did not earn more than the SMI in 2024. This is another area in which the government’s focus on raising the minimum wage is stifling growth: a better approach would be to make it easier for women to rise above the SMI, not paying them more to stay on it.
Constantly raising the SMI might look like “social justice and economic intelligence,” but it will not break the inter-generational poverty cycle in which most of Spain’s lowest earners are trapped. That requires dynamic structural reform, a better environment for entrepreneurs, and improved productivity—as Spain’s employers’ associations have been telling Sánchez for years. It’s time he listened.
