Recently, all Spanish pensioners received a letter from José Luís Escrivá, Minister of Social Security, informing of an 8.5% increase in all pensions, and in some cases, by 15%. This measure was taken after a year of high inflation to counter the loss of purchasing power.
The Spanish state pension consists of a pay-as-you-go system, which means that current employees’ social security payments fund current pensioners’ benefits. Knowing this, it is concerning that while pensions went up by 8.5%, the salaries supporting those pensions only increased by 2.78% last year. Furthermore, the net pension replacement rate, a measure of the proportion of a retiree’s pre-retirement income that their net pension income replaces, is 80% in Spain while 60% on average in the OECD countries.
With these indicators, the reader might already infer that this system is only viable as long as there are more workers paying social security contributions, which in Europe seems impossible with current demographics, or higher salaries through more productive businesses. Well, in Spain none of those two factors are in play, in fact, Spain has the highest youth unemployment rate of the OECD (29%) and the highest overall unemployment rate (13%), the lowest since before the global financial crisis. In addition, real wages in Spain have only increased 8.1% in the last 31 years.
There is plenty of other data that could be studied to demonstrate the same hypothesis, the Spanish pension system, even without significant pension increases like the one this year, is completely unsustainable. It is unsustainable unless the country’s youth is expected to live in poverty in order to pay immense social security contributions and taxes to sustain a wrecked system. This is the time where in Spain the same mantra is repeated in all media, family conversations and press releases: “intergenerational solidarity”.
For the ones who endorse it, intergenerational solidarity is a concept in which one generation sacrifices to improve the quality of life of another generation which is suffering a loss of economic means. In this case, that solidarity is unidirectional from the youngest and poorest generation to the oldest and richest generation.
The widespread discourse is that baby boomers have worked their whole life in order to obtain a public pension that will ensure a comfortable life until they leave this world. This pension is going to be paid for by a generation smaller in size and with an outrageous unemployment rate and lower salaries making the effort unbearable. But the idea of an “acquired right” by boomers is accepted by everyone, when in Spain there is no legal right to a “fair” pension. The right of the pensioner to receive a higher pension is not legally more important than the right of a young worker to keep as much as possible of his salary to start a family and his vital projects. While this might seem obvious, it is not part of the public debate because the concept of intergenerational solidarity is completely embedded in the discourse of every political party.
The discourse of any politician is influenced by the possible voting pools. In this case the demographic pyramid also works against the youth, as more than 20% of the population is over 65 years of age and is expected to continue to grow until it reaches 36% in 2066. The age of voters explains why politicians and media portray the elderly as a very vulnerable population in need of protection, when in fact they are the wealthiest demographic sector of the country.
Another example of the diversion of public debate against the youth is the housing crisis. The mainstream media blames the problem on big speculators and foreign investment funds. The reality, according to a recent study of Spanish real estate portal Idealista, is that 31.6% of the demand of housing in Spain is for a vacation home and only 22.8% is attributed to first-time owners. A sign that homeownership seekers are a financially secure population is that 74.8% need a mortgage of less than 50% of the home value or no mortgage at all. Knowing this, nobody will be surprised by the fact that the average home buyer is between 56-65 years and already owns a house, this home buyer is the one driving the prices up and pushing youth out of the market.
The flip side of the coin is that the average age of emancipation in Spain is one of the highest in Europe, 29.8 years. When they reach that age, they do so with 25% less salary than workers aged over 55, with 80% less accumulated wealth and with an unemployment rate 238% higher. The data that summarizes everything is that while 17.7% of the population over 65 are at risk of poverty in Spain, that percentage reaches 30.3% when looking at the population under 18. The Spaniards that have to maintain the pension system are fewer in number and significantly financially poorer.
The reasons for this situation are diverse and have been embedded in Spanish politics and society for decades, but it seems like Spain, and its welfare state in particular, is tailor-made for boomers. It is a system that extracts income through taxes to the most vulnerable population to give to the richest part, increasing inequality. That is the reason why, according to Eurostat, Spain is the second country that least reduces child poverty rate through the use of social transfers. There are countless everyday examples of this system, for example having senior diapers fully subsidized by the state while infant ones are taxed with the highest rate of VAT.
Perhaps, the most pressing issue for young Spaniards is the labour market. The seasonality rate for the population between 16-24 years is 69.1% and 38.7% for those between 25-35, on the other hand, workers over 50 enjoy a rate of 14.2%. Taking into account that in Spain there are extremely high severance payments, it is not difficult to guess the criteria used by business to lay off workers when performing staff adjustments. Layoffs in Spain do not usually affect the least competent, but those who are the cheapest to lay off are always the youngest ones. This also leads to the proliferation of large consulting firms that hire millennials for low salaries and then offer them to companies that will not have to bear the risk of facing the cost of severance pay.
As previously stated, the average age of voters is higher every day and there are no incentives for politicians and media to focus on these issues. As there seems to not be a solution in the foreseeable future, for now Spain remains No Country for Young Men.
