The rise in contributions to finance pensions will destroy between 140,000 and 240,000 jobs

2023-05-11 08:03:57

“New corrective measures will be needed from 2025 to reinforce the financial sustainability of the pension system due to the impact of some of the measures approved in the last reform”, which repealed the 2013 reform and has been led by the Minister of Security, José Luis Write. This was estimated by Ángel Gavilán, General Director of Economy and Statistics of the Bank of Spain during the presentation of the traditional Annual Report, which determines that the deterioration of the structural deficit that would occur between 2019 and 2023 would be determined by the “increase in structural primary spending » – the one that is not affected by temporary measures or by the effect of the economic cycle – observed in the last year. An important part of this increase would be related to spending on pensions, which will put upward pressure on spending without having guaranteed income.

The estimate of the impact that the different measures approved could have on the expenses and income of the system over the coming decades is subject to “high uncertainty,” the report details. In any case, the wide range of estimates available –both from the Bank of Spain and from other institutions– suggests that, as a result of the various regulatory changes adopted since 2021, “our pension system will have to face greater spending obligations in the long term , which have not been fully offset on the revenue side.” Therefore, the supervisor sees serious risks of unsustainability of the pension system, because the uncertainty of the “impact that the increases in social contributions adopted could have on employment, wages and competitiveness” is added.

Most of this sustainability is linked to the increase in prices. According to his own simulation – “based on an empirical concept”, Gavilán pointed out – an increase of one percentage point in the average effective rate of social contributions could generate, after four years, a fall in the number of employed close to at 0.25%. In nominal terms, the supervisor estimates that 140,000 jobs would be lost in those years due to the drop in hiring and the increase in labor costs, which “would have a negative impact on the system’s revenue estimates” and would be a “risk for its financing.” Other private organizations, such as BBVA Research or Fedea, raise that figure above 240,000 jobs lost due to the need to finance the system through social contributions.

For this reason, the supervisor believes that it would be necessary, within the framework of the new automatic adjustment mechanism, “to adopt new measures to strengthen sustainability.” A “rigorous, continuous and transparent” evaluation of the effects of this reform is also necessary, including its consequences on intergenerational equity, as well as an analysis that reveals “the scope of the incentives aimed at delaying the retirement age” and the «redistributive consequences of the system».