Productivity gap between Spain and the eurozone widens

While the economy appears to be moving like a rocket, with high GDP growth and employment at record levels, the recovery also has a major lingering problem: productivity. According to BBVA Research, Valor gross value added (GVA) per hour worked in Spain is 25.5% below the eurozone average, “a chronic deficit that has worsened over the past decade.” In addition,

While the economy appears to be moving like a rocket, with high GDP growth and employment at record levels, the recovery also has a major lingering problem: productivity. According to BBVA Research, Valor gross value added (GVA) per hour worked in Spain is 25.5% below the eurozone average, “a chronic deficit that has worsened over the past decade.” Moreover, the text argues that while much of this gap is due to the greater weight of tourism in Spain compared to industry, each of the activity sectors has lower productivity than its European equivalents.

Productivity is one of the worst indicators of national economies, to the point that the gross value added per hour worked in Spain last year “was similar to that of the eurozone in 1998,” according to the report on labor productivity: Spain versus the EMU, published yesterday by the BBVA research service. That is, a 25-year delay compared to our main trading partners. And the differences have gradually increased throughout this period, since “GVA per hour worked increased by 18.9% in Spain between 1995 and 2023, compared to 29.7% in the eurozone” over this period. Moreover, “productivity per worker has grown by barely 11.6% over these 28 years,” “while in the eurozone it has grown by 19.4%.” And the gap has widened even more over the past decade.

There are several elements that explain this “chronic productivity deficit between Spain and the euro area”. On the one hand, we must look at the different structure of employment, given that Spain has a higher weight than average in some sectors with below-average productivity, such as trade, transport and hospitality, and yet has fewer workers in areas with higher productivity, such as information and communications technology (ICT), professional activities and industry. And to this we must add the decline in productivity in the public sector, including health and education, an area that employs more people both in Spain and in the rest of Europe, where productivity is actually growing. However, beyond this different composition of the labour market and the lack of incentives for public servants, there is another problem: all sectors except agriculture “show lower productivity levels in Spain than in the euro area”.

Corona virus

BBVA Research carries out this analysis based on data from recent decades, with a particular focus on the latter, although it warns that the evolution since the outbreak of the pandemic has been somewhat atypical. Thus, productivity per hour worked increased in 2020, because “the closure and closure of low-productivity businesses has caused a sectoral restructuring of employment that has increased average productivity”, while “the reduction of working hours in sectors affected by mobility restrictions and the maintenance or recovery of unaffected and essential sectors has led to an increase in GVA per hour worked. However, productivity fell in the first phase of recovery (up to 2022) and has grown at a very low rate in the second (to date), due to the increase in the share of employment in tourism, with below-average labor productivity, offsetting “a general improvement in efficiency” in a large part of the labor market, especially in industry, the financial sector and the raw materials sector.