UPDATE 1-Spain announces 5.5% hike in minimum wage as "tool" against inequality

Spain's new government on Wednesday announced a 5.5% rise in the minimum wage retroactive to Jan. 1, the third major economic initiative the left-wing coalition has announced since taking office earlier this month.

The move is part of a plan to boost the net minimum wage to 60% of the average monthly pay packet of 1,944 euros ($2,154.92) by the end of the government's four-year term. "I want to announce that we are a strong government, that we are heeding the mandate of a social majority that wants us to move forward," Labour Minister Yolanda Diaz said after meeting with business and union representatives.

She said the rise in minimum wage to 1,108 euros per month was a "small tool" with which to tackle inequality in Spain. The new government has also announced rises in pensions and civil servant salaries since taking office.

Prime Minister Pedro Sanchez decreed a 22 percent increase in the minimum wage in late 2018, the biggest jump since 1977. His move catapulted Spain from having one of Europe's lowest minimum wages, relative to the average wage, to one of the highest. BBVA bank, which has been critical of minimum wage hikes, said they so far had had a "limited" beneficial impact while slowing down the pace of job creation. It said the pay increases had cost a potential 45,000 jobs in the least developed regions of Spain such as Andalusia and the Canary Islands.

The government and unions firmly maintain that the wage hikes have not negatively affected employment figures. Business leaders were unhappy with Wednesday's announcement while unions welcomed it.

"The minimum wage has not destroyed employment in Spain. And the rise in salaries is going to contribute to creating more jobs in Spain," said CCOO union chief Unai Sordo. The government is also expected to deliver on a promise to roll back parts of a labour reform passed in 2012 that made it easier for companies to fire workers and drove down wages. ($1 = 0.9021 euros)