Spain | Productivity as the foundation for social progress

Summary

Although per-capita income also depends on demographics, the employment rate and hours worked per employed person, productivity is the only determinant that is not subject to a natural limit and is capable of generating sustained long-term growth.

Key points

• Key points:
• Measuring productivity is not straightforward. At the aggregate level, it is usually measured by the ratio of GDP to employment. If employment is measured per person employed, it does not account for the fact that productivity gains make it possible to produce more with fewer hours.
• The evidence for the Spanish economy is that GDP per hour worked in purchasing power parity has been showing poor performance for decades, growing at low rates and widening the gap with more advanced economies.
• While in the US, real productivity per hour worked has grown by 1.5% on average per year since 1995, and by 1% the EU27, in Spain it has grown by 0.6%, which explains why productivity has gone from being 9.5% above the EU27 in 1995 to 8.7% below in 2023.
• In addition, the data for Spain indicate that the distribution of national income between labor and capital has been fairly stable over the last six decades, which is somewhat surprising considering the intense shifts in technology and sectoral composition that have taken place since 1960.
• In view of this evidence, Spain's main priority is not the functional distribution of income between labor and capital, but to increase productivity growth, to close its gap with the EU and to achieve this while reducing unemployment.

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