Fernando Gonzalez Urbaneja | Social Security premiums are in the news because of the announcement of a six-tenths increase in rates. And it should be pointed out that we suffer from a confusion of concepts that go way back and do not help us understand them. There is still a sterile distinction between the so-called employee contribution and the company contribution, a rhetorical distinction that leads to confusion. The fact that part of the contribution is reflected in the payroll and another part under an operating cost item is irrelevant; because in fact all contributions are compulsory labor costs for the company, deferred wages in favor of the employee, deposited into the government administered social security system.
The employee is not aware that the wage cost for the employer is the gross cost reflected in his wages (including part of the social security contribution and the deduction of personal income tax) and the contributions charged to the company, which are also wages are since their origin lies in the employment contract. The so-called gross cost for the company is the sum of all these concepts. And it would be pedagogical if they could all be found in the payroll, because everything is salary. Today, 79% of social security contributions in Spain go to the pension system, 19.5% to unemployment, 2% to vocational training and 0.55% to the wage guarantee fund. In total, the additional costs amount to 36.25% of wages before deductions, which the government plans to increase by six-tenths of a percentage point. The purpose of this step is to replenish the social security reserves (the piggy bank) in anticipation of the effect of the arrival at retirement age of the generations from the high birth rate phase.
And a cautious precaution at a time of severe and chronic deficits in the mainstream pension system. A deficit that the government plans to cover from the budget, through treasury appropriations and the inclusion of expenditure hitherto charged to social security.
The problem with the increase in premiums is that it increases the effective labor cost, which is a barrier to employment when unemployment is the biggest problem for Spaniards. The system administrators’ dilemmas in balancing the numbers are not easy to solve. If the fixed part of the equation is to maintain the purchasing power of current and future pensions, the variable part is nothing but income. Namely more contributions or more transfers from the Treasury, which is also not in good financial health.
Employers complain that raising wage bills is inconsistent with employment, unions want more transfers from the state (someone will pay the money), and the government is trying not to lose the election. Getting out of the labyrinth takes more explanation, more political leadership, more willingness to solve real problems.
In any case, let it be clear that all contributions are wages. They are linked to employment and everything is paid for by the employer. And he gives much of it to the state to manage with the zeal of the “good trader”, who does not draw quickly and does not promise what he cannot deliver.