Spain | Increased productivity for greater social progress

Summary

The per capita income and welfare gaps between Spain and the most advanced European economies—20 percentage points on average in the last four decades—can be explained by Spain's underuse and misuse of human capital, the greatest source of wealth for any country.

Key points

• Key points:
• Underuse because Spain experiences low labor participation in certain population segments and high unemployment in general. And misuse because Spanish output per worker is lower than that of most of its neighbors, even though it has some of the longest working hours, which suggests that productivity per hour worked is significantly lower in Spain.
• The empirical evidence for the importance of productivity is conclusive. A large sample of 148 countries shows that productivity growth over the past 6 decades can explain 80% of the growth in private and public consumption per capita, as a result of increased household income and government revenue.
• Although the average productivity growth rate in Spain saw productivity double every generation since 1960, in the last three decades, GDP growth per worker has barely reached 1%. If growth continues at this rate, the current level of productivity and consumption would not double again for three more generations.
• Spain's productive system needs better regulations to facilitate creation, growth and assumption of risks by firms, to ensure homogeneous regulations in markets at the national level, and to increase the efficiency of the existing regulatory framework and compliance therewith.
• The specific problems of Spain's labor market also require ambitious and comprehensive reform that brings this country's regulations closer to those of the EU countries where unemployment rates are 10 points lower than Spain's over the last four decades, and with less seasonal workers.

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