Spain | Reduction of working hours and productivity

Summary

Evidence shows that permanent improvements in productivity lead to a gradual reduction in hours worked per employee. In contrast, reversing this order of causality hinders employment growth.

Key points

• Key points:
• At the Social Dialogue Roundtable, trade unions and business organizations are currently discussing the government's proposal to reduce the working week from 40 hours per week to 37.5 within two years, with the intention that this reduction will not lead to a decrease in wages and that it will be absorbed by companies, under the assumption that they have market power.
• Over the last 60 years, Spain has followed the pattern of the OECD: as the GDP per working person has grown, the hours worked annually per employee have fallen. Taking into account the growth experienced by these economies, every 10% increase in productivity over the last six decades has been associated with a 3% reduction in hours worked.
• The number of hours worked per employee gradually declines when there are permanent gains in productivity and wages. Technical progress makes it possible to produce more and better goods and services, while spending fewer hours working. As wages and permanent income rise, so does the demand for goods, services, and leisure.
• In contrast, the drop of 5.5% in excess total hours worked in 2023 in Spain with respect to the proposed legal limit would imply an increase in labor costs equivalent to 1.5% of GDP, which would subtract around 0.7 percentage points from the average annual GDP growth during the next two-year period and 0.8 percentage points from employment growth. The effect on the unemployment rate would be about 0.8 percentage points more each year compared to the scenario without this change in labor regulations.

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