- Five documents on demographic projections, the activity rate, the impact of the minimum wage and labour reform on employment, and the impact of labour measures on contribution revenue have been published.
- AIReF presents the details of its demographic projection models and estimates that the total population of Spain will increase to 52.7 million by 2070. This will be due to increased longevity and net foreign migration. The population over 65 will progressively increase, and the working-age population will begin to decrease from 2029. This will cause the dependency ratio to rise to 69.8% by 2050
- The activity rate will stabilise at around 66%–67% until 2050. This is a result of the increasing relative importance of the older population, which generally has lower activity rates, despite a delayed retirement age
- AIReF estimates that the increase in the minimum wage in 2023 would have reduced job creation by 55,000-85,000 affiliates. This is a greater impact than the 2019 increase because more people now receive the minimum wage, which has become the most frequent salary in Spain
- AIReF notes that labour reform measures have improved the likelihood of labour market entry and reduced the risk of job loss. This is evidenced by a drop in temporary employment and a greater presence of permanent contracts
- The documents conclude that the minimum wage and labour reform measures have had a limited, though slightly positive, impact on economic activity, employment and social security contributions in terms of GDP
- These documents are in addition to the four published in April on the income and unemployment model, the health, education and long-term care models, and the expenditure, adequacy and equity of the pension system
- With this publication, AIReF reinforces its commitment to transparency and technical rigour, making the methodological and analytical basis of its long-term scenario available to citizens, experts and public officials
Today the Independent Authority for Fiscal Responsibility (AIReF) completed the publication of the technical documents supporting its Opinion on the Long-Term Sustainability of Public Administrations, released on March 31st. Specifically, AIReF published five documents covering its demographic projections (2024-2070), projections for the activity rate, the impact of the minimum wage on employment, the impact of labour reform measures on the labour market, and the impact of both the minimum wage and labour measures on contribution revenues.
The analyses of the minimum wage, labour reforms and their impact on contribution revenue also support the report on the pension expenditure rule published alongside the opinion and commissioned to AIReF as part of the latest reform of the system. To elaborate this report, AIReF was required to estimate the impact of measures adopted since 2020 to strengthen the public pension system’s revenue in the period 2022-2050. As specified in a decree following the reform, the analysis had to cover both measures with a direct impact on the system’s bases as well those affecting the number of contributors, labour market reforms and other labour regulations with a structural effect on revenues.
Last April, AIReF published four technical documents that also underpin the Long-Term Opinion. These documents covered the income and unemployment model, models for health, education and long-term care, and the expenditure, adequacy and equity of the pension system. With the release of all nine technical documents, AIReF is reinforcing its commitment to transparency and technical rigour, making the methodological and analytical basis of its long-term scenario available to citizens, experts and public officials.
Demographic projections
In the first document, AIReF presents the models it uses to obtain its demographic projections, detailing the methodological improvements introduced with respect to the 2023 publication. AIReF began to develop its own demographic forecasts in 2018, in response to the challenges that Spain´s changing population presents for public finances. The aging population poses challenges for the pension system, health and care services, as well as the tax system, labour market and consumption patterns, which makes demographic projections a key element of sustainability analysis.
Following the update, AIReF estimates that Spain’s total population will increase from 48.6 million on 1 January 2024 to about 52.1 million in 2050 and 52.7 million in 2070. This is due to increased longevity and net foreign migration. AIReF estimates that from 2029 onward, immigration will not be enough to prevent a decline in the working-age population. At the same time, the percentage of the population over 65 will increase year after year. This ageing will lead to a deterioration in the dependency ratio (defined as the proportion of the population under 16 and over 66 in relation to the working-age population), which will rise from 47.8% as of January 1st, 2024, to 69.8% as of January 1st, 2050.
Activity rate
The second document focuses on the activity rate as a key element in determining fundamental variables for the sustainability of public accounts, such as social security contributions, in the context of aging population. AIReF notes that the activity rate of individuals aged 16 to 74 has remained relatively stable in Spain since 2008, at around 66%, with an upturn following the COVID-19 pandemic. Until 2050, AIReF projections point to a stabilisation of the activity rate at around 66%–67%. This result is a consequence of the increase in the relative participation of the older population, which generally has lower participation rates, despite the delay in the retirement age.
Specifically, AIReF points out that participation rates among people over 60 have traditionally been low in Spain compared to other European countries. However, a gradual increase is projected, which would allow Spain to reach intermediate levels in the European context, like those observed in countries such as Portugal, the Netherlands, Ireland and Germany.
The impact of the minimum wage
In the third document, AIReF analyses the impact of the minimum wage on employment, particularly after the recent increases and in view of AIReF’s new legal obligations to assess the revenue measures of the pension system, including the minimum wage. The minimum wage has risen from €735.9 per month in 2018 to €1,184 in 2025, representing a cumulative increase of 61%, higher than that recorded in the previous decade. Furthermore, according to the Continuous Working Life Survey (MCVL), the percentage of individuals earning the minimum wage has risen from 3.5% in 2018 to 7.4% in 2023. In fact, AIReF points out that the impact of the increase in the minimum wage is determined not only by the magnitude of the increase, but increasingly by the percentage of individuals affected. According to the analysis, the minimum wage is the most common wage in the Spanish economy.
Regarding the impact on employment, AIReF points out that the 2019 increase would have reduced job creation by between 0.28 and 0.45 percentage points (40,000-65,000 fewer affiliates). In the case of 2023, the estimated effect would be somewhat greater, between 0.34 and 0.53 points (55,000-85,000 fewer members). Both values are within the range estimated by literature. The AIReF points out that the higher incidence in 2023 may be related to the growing relevance of the minimum wage within the wage structure and to increased exposure. However, it notes that only direct effects on enrolment are estimated, without considering indirect impacts such as a possible increase in consumption or changes in wage distribution.
Impact of labour reform measures
In the fourth document, AIReF analyses the labour market and the impact of the implemented reform measures on employment and social security contributions. AIReF states that the functioning of the labour market is fundamental for the sustainability of public finances because it determines income, growth and the long-term well-being of a society. Additionally, labour market reforms are among the measures that AIReF must evaluate as part of its analysis of how to strengthen the pension system.
The results of the analysis show positive, though moderate, effects that can be associated with the implemented measures. Starting 2022 and compared to the 2018-2019 period, AIReF confirmed a generalized improvement in the likelihood of exiting unemployment, especially towards permanent and intermittent permanent contracts. At the same time, AIReF observed a slight reduction in the likelihood of job loss, particularly among traditionally vulnerable groups.
AIReF concludes that the reforms have improved overall insertion and stability and have helped to partially reduce segmentation, which aligns with the drop in temporary employment and the greater presence of permanent contracts. However, AIReF notes that the results should be interpreted cautiously since they are average effects measured over a limited time frame and are conditioned by simultaneous shocks. In AIReF’s opinion, these conclusions will need to be reevaluated as new data becomes available to confirm whether the detected effects are consolidated or change over time.
Pension system revenue measures
In the fifth document, AIReF analyses the impact of the measures adopted since 2020 to strengthen the public pension system’s revenue in the period 2022-2050 and calculates the impact of these measures on contribution revenue as a percentage of GDP. In doing so, AIReF is fulfilling its new legal mandate. Using various macroeconomic models, AIReF concludes that the set of simulated measures (minimum wage and labour reform measures) have had a limited, though slightly positive, impact on economic activity, employment, and social contributions in terms of GDP.
Specifically, the increases in the minimum wage would have had a slightly expansive effect on both GDP and employment, as well as on social contribution revenues as a percentage of GDP of 0.1 percentage points on average for 2022-2050. Meanwhile, the labour reform measures would have had a positive, though moderate, impact on both GDP and employment. The effect would be positive in terms of contribution income levels, but practically nil when compared to the ratio to GDP due to the increase in nominal GDP.
