Argthtjtr

According to the BBC, Spain wants to increase the minimum wage by more than 20%:

Spain's minimum wage will jump by 22% in 2019 - the largest annual
increase in more than 40 years.

It means millions of low-paid workers could see a pay rise from €736
($835; £665) to €900, effective from January.

An increase to the minimum wage is also a topic where I live (Romania) and I've often heard analysts arguing that large increases like this are rarely followed by a productivity increase of the same amount and that it might even make some investors leave the country.

Why would the government increase the minimum wage by such a large percentage in one go rather than by a smaller percentage more often (e.g. yearly)? Theoretically, such a strategy should minimize the risks.

You're looking at the policy economically rather than politically.

Spain has to have a general election by July 2020. The government are contemplating having it earlier, possibly in May 2019 (to coincide with regional elections).

So announcing a flagship policy of the "look what we're doing for our people" variety, a few months before an election, keeps it in people's minds. Also, it won't have had an opportunity to have negative consequences prior to the election, so there's only upside at this point.

Obviously, this wouldn't work as well, politically, if you announced a much smaller increase, even if you plan to give further increases in subsequent years. The Euro in the pocket is worth a lot more than promises.

It could have economic harm subsequently. However, given there would be 4-5 more years before the next election, the minimum wage rise will be old news and a downturn can be blamed on other things.

There is also a possibility that current minimum wage doesn't reflect actual wages paid to the people.

For example, in my country, due to poor law enforcement abilities to pursue these types of offences, it was very common practice in many sectors for employers to declare workers' pay as being only minimum wage, but actually pay them a higher wage. The difference between the reported wage and actual wage was paid in cash without paying taxes on it. It is still the situation in some sectors, but the situation has improved quite dramatically over the last decade.

Bringing minimum wage closer to actual minimal pay employees receive eliminates the opportunity to evade taxation. It is much easier to prosecute for using employees that are paid completely under the table, than to prove partial cash transactions.

I often heard analysts arguing that large increases like this are rarely followed by a productivity increase of the same amount and that it might even make some investors leave the country.

This sounds very vague. Many economic policies (higher taxes, lower spending, more debt, ...) have the potential to make some investors leave the country and there are always some analysts predicting imminent doom as consequence of almost any proposed policy.

When Germany introduced a minimum wage in 2015, quite a few prominent economics' scientists predicted the loss of in the order of hundreds of thousands of jobs. They erred and the unemployment continued to fall and the number of jobs continued to rise.

One positive effect of a higher minimum wage is that almost all of it is spent immediately and returned to the economy. So if indeed not too many people lose jobs through it, then there is also a chance of additional economical growth. Low incomes are spent proportionally more on domestic products (not spending money on expensive oversea-trips, buying second-hand cars instead of imported cars). There is a long going international trend of a declining wage share. An increased minimum wage could counteract the decline in the wage share and reduce inequality. A higher minimum wage is not only a risk but also a chance.

I wonder why having such a large increase at once and not increasing by a smaller percentage often (e.g. yearly). Theoretically, such a strategy should minimize the risks.

It would minimize the risk, but it would also minimize the chances. And it just may be a too small step anyway to show any effect.

Let's just assume for a moment that there is an optimal minimal wage, which might be defined as the minimal wage with the highest benefits (more income to lowly paid employees) at the lowest costs (less income to those not having jobs anymore).

Now the question is how far the current minimal wage is away from that optimal minimal wage. If the difference is large, then you actually want to make a large jump. 736€ per month doesn't sound like it's overly large, even 900€ per month doesn't sound like it's overly large, even more may be imaginable. For comparison, the minimum wage per hour in Germany is currently at 8.8€ which means something like (160 hours per month x 8.8€ per hour = 1408€ per month (before deductions), similar to the minimum wage in France) which is way above the numbers you have given for Spain.

Example: if the current minimal wage is $1 per month and the optimal minimal wage is $100 per month then you want to increase the minimum wage by 10,000 % and nothing less. It all depends on where you come from and where you want to go and what you fear more (over- or undershooting your goals).

I agree that once you are close to the optimal minimum wage you probably want to adjust the minimum wage in smaller steps.

How will we know if the rather large jump now was right or wrong? The time evolution of the unemployment/employment rate as well as the growth/shrinking of GDP will probably give a hint.

The current economic situation of Spain is not too bad. GDP is growing continuously since 2014 and unemployment is falling. However, unemployment is still quite high. A strong increase in the minimum wage might indeed be too risky. But that's far from sure. I think that the answer from Alex framing the strong increase as a pure election present is not proven sufficiently. I cannot exclude that the two major political parties supporting the increase in the minimum wage (PSOE and Podemos) actually believe this increase is a sound economic policy. Time will tell but it might be that the strong increase now will actually be beneficial for the Spanish economy.

As Alex says, the purpose of the increase might be due to elections being close, although it being approved is unlikely given the support this measure has in the Parliament is not enough.

In order to understand if the minimum wage should really be raised, knowing that a more or less common apartment rent cost might be around 600€ in a non-centric area of the main cities. This makes that even two people living together with both earning the minimum wage, can be very short of money.

Still, having lived in Spain for whole my life and having known people in these conditions, controlling that contracts are respected can be even more useful. It is not uncommon that low-end workers, poor people or immigrants are contracted part time but actually are working full time. Extra hours are also usually not paid apart from some specific areas (some industries and hotels or restaurants). IT companies for example almost never pay extra hours, being very common and numerous amongst all of them.

P.S.: My English is very rusty so there might be many grammatical mistakes.