The report ‘The increase in permanent contracts and their possible impact on spending’, published by the Bank of Spain, concludes that the conversion of temporary contracts into permanent contracts in 2022 could have contributed to increasing the expense to income ratio between 0, 18 and 0.24 percentage points, which would be equivalent to a total of between 1,189 and 1,586 million euros. This means that spending would have increased between 1,846 and 2,462 euros in households whose head of family signed a permanent contract.
According to the report, one explanation for the increase in spending is the greater perception of security of permanent contracts, since households do not need such a high savings cushion to cover possible income and job losses.
In 2022, workers with an indefinite contract increased by 1.6 million and with a temporary contract they fell by 1.2 million. Expenditure could have increased as permanent workers consumed a greater proportion of their income.
And it is that historically, the conversion of a temporary contract into an indefinite one has led to an increase in the expense to income ratio of 20% (approximately) in the following two quarters.
To the extent that employees with a temporary contract have had a greater probability of transitioning to unemployment and, therefore, a greater perception of job instability than employees with permanent contracts, these developments may have consequences on the spending pattern of the families.
The reason is that, according to the Bank of Spain, in the presence of uncertainty about future income, families can postpone certain expenses, in order to maintain a savings cushion that can contribute to sustaining consumption in the event that falls materialize. of income derived, for example, from losing a job (so-called ‘precautionary savings’).