The increase in the minimum wage increases the rest of the collective bargaining wages.

The increase in the minimum interprofessional wage (SMI) is driving up wages above this benchmark that are governed by collective bargaining agreements. This is the result of research by Ferran Elias (University of Girona) and Marc Riudavets-Barcons (University of Helsinki) published by the Barcelona Institute of Economics (IEB-UB) in a report on the SMI.

"In countries with relatively centralized collective bargaining agreements and active wage negotiations, minimum wage policies not only increase the income of directly affected workers but also benefit those earning higher wages," states the report, which analyzes what happened in Spain in 2019, when the minimum wage grew by 21.5% in real terms.

For every 1% average increase to reach the minimum wage, other salaries grow by around 0.5%.

One of the reasons for this domino effect with salaries higher than those established by the minimum wage is to "preserve the wage hierarchy among workers." In collective bargaining, if the lower wages imposed by the minimum wage reach middle management levels, it is possible to agree to increase these intermediate salaries to maintain the positive differential compared to rank-and-file employees.

The researchers emphasize that "Spain constitutes a unique setting for studying the interaction between minimum wages and collective bargaining" because "there is no automatic transmission mechanism" for increases in the minimum wage and because the coverage of workers covered by collective bargaining agreements is 80.8%. In Europe, it is around 70%.

The study found that for every 1% increase in average wages toward the minimum wage, other salaries increase by 0.53%. The researchers also acknowledge, as did other studies in the study on the minimum wage published by the IEB-UB, that there is a negative effect on employment with job losses, but this is marginal. "Improvements in wages almost quadruple job losses," the report states.

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Obviously, the impact of the minimum wage on wages not indexed to the minimum wage is less as the salary level increases. Thus, the aforementioned 1% increase in wages to reach the minimum wage has an impact of only 0.07% for the 10% of workers with the highest salaries.

The researchers also found that there were more general salary increases in companies with collective bargaining agreements affected by the minimum wage increase than in other companies.

In another article in the IEB-UB special issue on the minimum wage, Attila Lindner (University College London) argues that "empirical evidence indicates that minimum wage increases have relatively modest effects on employment, particularly among low-wage workers." He adds that "instead of reducing jobs, companies usually adjust with price increases, productivity improvements, and slight reductions in profits."

Christine Aumayr-Pintar and Carlos Vacas (Eurofund) point out that a benchmark for determining whether a minimum wage is adequate is that it is equivalent to "60% of the median gross wage or 50% of the average gross wage."