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The pension reform includes measures to strengthen Social Security revenues that in practice involve applying 'taxes on work', that is, new economic burdens for companies that will discourage hiring and that, in the first year after the full deployment of the norm will mean the loss of 117,000 jobs, according to calculations by the Foundation for Applied Economics Studies (Fedea).

This estimate, developed by Miguel Ángel García, researcher at Fedea, is based on the empirical evidence collected by the Independent Authority for Fiscal Responsibility (AIReF) in its Opinion on the sustainability of public accounts, and according to which an increase of 1 percentage point in the effective rate of social contributions or taxes has a negative impact on employment of one tenth in the first year and two tenths after two or three years.

"Following this causal relationship, a rise of one percentage point in the contribution rate (0.37 contribution rate points) would reduce 16,000 full-time jobs in the first year and 33,000 in the third year. That is, an increase of 1 contribution point would have a negative impact of just over 43,200 jobs in the first year and almost 90,000 jobs in three years. Given that 2.7 points of the contribution rate are needed to increase income by 1 point of GDP, this rise in labour costs would imply the loss of almost 117,000 jobs in the first year and almost 240,000 jobs in the three-year period, "concludes the expert.

Specifically, according to the AIReF model, the effective rate of social contributions, which would have been 28.69% in 2023 in the absence of reform, has gone to 29.69%, one point more, which will result in a drop of one tenth in the creation of full-time jobs for 2024 and 2025, and two tenths already in 2026.

The AIReF specifies that the impact on employment will be heterogeneous depending on the wage level, as will the increase in the effective rate. Thus, a salary income of 70,000 euros will have an increase in taxation of 7,500 euros gross per year; while if the salary reaches 100,000 euros, the tax increase will be 9,700 euros, for example.

The cap of the maximum contribution bases is the measure that explains for the most part the increase in 'taxes on work', since the current ceiling of 4,495.5 euros on which contributions are calculated will rise each year until accumulating a real increase – additional to inflation – of 38% in 2065, to the equivalent of 6,200 euros today. However, the solidarity quota for the highest incomes (which will tax the salary bracket from which contributions are not made at a rate that will grow over time and that will be higher the higher the salary) and the Intergenerational Equity Mechanism (MEI, which applies an extra contribution of 0.6 percentage points -0.1 at the expense of the worker and 0.5 of the company-) will also influence.

The bulk of the collection falls on low and medium incomes

Wage incomes of more than 54,000 euros will assume 65% of the cost of the reform due to the increase in contribution bases, but salaries below that amount will bear the remaining 35%. Although the latter are only affected by the MEI, as it is a larger group in which most salaries are concentrated in Spain, their joint contribution will be higher.

In fact, according to AIReF, incomes up to 50,000 will contribute to the State a collection equivalent to 0.056 points of GDP by the MEI (about 743 million euros), compared to 0.0125 points (166 million) that will contribute on average income of 50,000 to 100,000 euros by this mechanism and 0.001 of incomes above 100,000 euros (13 million).

However, if the joint impact of the three measures (EIP, cap and solidarity surcharge) is taken into account, the highest collection is achieved from incomes of 50,000 to 100,000 euros (from 0.071 points of GDP or 942 million euros), followed by those of less than 50,000 (0.056 points, 743 million euros) and, finally, of those of more than 100,000, which being much less contribute a total of 0.012 points of GDP (159 million).

This shows that, in aggregate terms, it will be incomes from 50,000 euros that contribute the most to Social Security for the payment of babyboom pensions, but in practice low and medium incomes will also be affected and the system will collect almost the same funds from them. This group includes all young people in the labour market, who are usually those with the lowest wage levels.

Although Fedea's analysis is based on the AIReF Opinion, this think tank warns that some of its assumptions are too optimistic, such as the forecast of how many people will decide to delay their retirement age encouraged by the approved incentives.

The AIReF considers that around 30% of workers will decide to retire 3 more years voluntarily until the age of 68, but this quantification is based on a survey conducted by the Ministry of Social Security that detected that 25% of workers declared power, "not wanting", says Fedea, to freely postpone access to retirement.

Depending on what companies and workers change their behavior, savings could range from 0.2 points if only 10% of employees delay retirement to 1.5 points if they do so more than 55%. The Ministry has assumed in its calculations that 55% of workers will choose to retire later.

  • Social security
  • GDP
  • Pension
  • Taxation
  • Employment

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