The debate on reducing the working day has collided head-on with the problem of productivity in Spain, without the government, unions and employers agreeing on the impact that the former will have on the latter . For now, experts are issuing a clear warning: a measure aimed at improving the lives of workers can further widen the gap between per capita income and Europe if it is not accompanied by a substantial increase in hourly productivity.
In the long term, Productivity in Spain faces challenges linked to our productive fabricthe weakness of public and private investments and the reduction, compared to other economies in our environment, of human capital. Despite some progress in modernizing certain sectors, Spain still lags behind its European neighbors in terms of investment in R&D and technological capital.
Productivity issues are crucial in explaining the gap in GDP per capita between Spain and Europe. Margarita Delgado, former deputy governor of the Bank of Spain, highlighted this summer the productivity problems facing Spain and their impact on economic convergence with the rest of Europe. According to Delgado, “Spain’s low productivity and high unemployment rate have prevented the country from reaching European Union per capita income levels.” This productivity stagnation has been a persistent problem since the 1990s, when Spain’s GDP per capita stood at 92% of the European average; In 2022, this figure had fallen to 85%, according to this expert.
“Spain’s lower productivity largely explains this difference. In fact, if productivity per worker in Spain was equal to the EU average (it is currently 11 percentage points (pp) lower), the Spanish per capita income would only be 4% lower than that of the EU average,” says this expert.
In a simple and understandable way. If Spain produces less than Europe per employee and per hour workedto compensate for this gap, productivity would have to be increased or, failing that, work more hours to produce the same quantity. This last option is undoubtedly the least suitable. However, reducing the working day would imply a reduction in hours worked, which would further widen the gap in GDP per capita between Spain and Europereducing levels of prosperity, at least in economic terms.
This is what economist Javier Ferri, one of the leading experts in productivity analysis and researcher at Fedea and other research services, warns: “If the negative gap in per capita income with our neighboring countries is not higher, it is precisely because in Spain employees work on average more than in Europe”. Thus, the reduction in hours worked could “further widen the per capita income gap” with Europe if it is not accompanied by a substantial increase in hourly productivity. Something that doesn’t seem possible at the moment.
In the most likely case where productivity does not compensate for the reduction in hours worked, our per capita income would be negatively affected. Furthermore, this measure could have an uneven impact on different economic sectors, being more detrimental to those that rely on intensive and low-skilled labor. This fact could improve productivity through a composition effect, but with perverse effects on the groups we should protect the most.
Does it improve productivity?
The Second Vice President and Minister of Labor, Yolanda Díaz, affirms that reducing the legal limit of the working day in Spain from 40 to 37.5 hours per week in 2025 and even more in the following years will be achievable, precisely , thanks to improving productivity through technology. A thesis similar to that of the unions, which influence the fact that many agreements agree on a maximum working time lower than the legal duration. Although in the case of the Galician minister, the emergency has a political nuance.
The founder of Sumar insists on respecting the deadlines set by the investiture agreement signed with the PSOE almost a year ago, which also provided for a transitional period for this year during which the maximum would fall to 38.5 hours. Something that, at this point in 2024, seems impossible. The coalition Executive launched this commitment without consulting social dialogue, but its parliamentary weakness forced it to launch negotiation tables which delayed the process. It is for this reason that the PSOE hesitates to approve the measure without a consensus with businessmen.
They categorically reject the plan and the working hours, both because of its cost and its impact on the reduced productivity of Spanish companies, which took three years to return to the volume of hours worked before the pandemic.
However, the latest macroeconomic data seems to agree with Díaz: GDP and productivity per hour worked are growing, as is employment, which is unique in the economic history of Spain in recent decades . This would support what “number three” of the Executive calls a “distribution of productivity” which would make it possible to combine an increase in wages with a reduction in working hours. The problem is that experts consider this development to be unsustainable.
María Jesús Fernández, senior economist at Funcas, highlights that the “labor shortage”, which forces the incorporation of organizational and productive improvements to raise the level of production, could have contributed to the improvement in productivity and employment. “But this is happening simultaneously with a decline in business investment, so, even if in the short term it was possible, perhaps because of this labor shortage, if investment does not recover, I don’t think it has much chance of continuing in the future,” he said in statements to elEconomista.es.
For his part, Javier Ferri underlines that this recent development contrasts with a weak overall performance in 2023, when productivity “has declined steadily, mainly due to global shocks that have negatively affected GDP per hour worked”. Furthermore, this expert emphasizes that the “productivity gap” with the EU continues to be a major obstacle.
“Spain maintains a persistent negative differential in productivity per hour worked compared to the EU8 average (Germany, France, Netherlands, among others), which approximately 23%. This difference does not only affect current economic performancebut also limits the possibilities for sustained long-term growth,” he says.
Here is the impact of reducing working hours. Experts warn of a negative impact not so much due to the reduction in working hours itself, but rather because it is not seen independently of other measures aimed at improving productivity. “But it takes a lot of growth for that to happen. And, in any case, if this reduction in working hours did not occur, the productivity derived from these improvements would increase more, because it would not counteract this effect,” explains Maria. José Rodriguez. Ferri is of the same opinion, who considers it “difficult to believe” that workers manage to “maintain or increase their level of production in less time”.
One piece of advice and many doubts
At the end of July, the government approved the creation of the Productivity Council to analyze these measures, a body chaired by the head of the ECB Juan Francisco Jiménez Serrano, responsible for carrying out analyzes and proposals to improve the productivity and competitiveness of the Spanish economy. . But his activity has not yet generated any reports. The Ministry of Labor was quick to point out that this body was created to advance “the dual objective” of “increasing productivity, but also improving its distribution”.
That’s to say, generate more wealth and distribute it in a balanced way with better wages and fewer working hoursas the minister defends, even if we do not clearly know how she intends to achieve this “virtuous circle”. For the preparation of this article, elEconomsita.es asked the department headed by Yolanda Díaz for a response to the arguments presented by the experts, but did not receive a response.
Barriers to productivity
Spain faces various labor productivity challenges, both today and in the future, which limit its economic growth and competitive capacity. According to Jesús Castillo, economist at Natixis, the Spanish labor market presents significant “inefficiency” which prevents optimal allocation of labor. Among the factors contributing to this situation, Castillo highlights the “low geographic mobility” of the workforce, which limits the ability to respond effectively to job demands in different regions.
Furthermore, the country has a “high duality in the labor market”, characterized by a high proportion of temporary jobs and low integration of young people into the labor market, which affects investment in skills and the hiring of part-time or discontinuous permanent workers. This lack of employment continuity reduces human capital formation and has, in the long term, an impact on national productivity.
Ferri shares this diagnosis and adds the political role. “Indicators on the quality of our institutions and the efficiency of our public sector have been in free fall for more than a decade, which encourages pessimism about the desire to carry out reforms successfully (and in the right direction) that our economy needs,” he emphasizes. out.
“Even though some indicators suggest that productivity could improve, current labor market imbalances, as well as low investment in innovation and the difficulty of attracting more skilled immigration than the local population, represent significant obstacles .”
On the other hand, the low level of investment in research and development (R&D) limits opportunities for improving efficiency and innovation. As Castillo points out, Spain is the eurozone country with the lowest percentage of R&D investment in relation to GDP, which “prevents effective improvement of production processes.” This investment gap not only affects current production, but also represents a risk for the future, as it limits the innovation capabilities needed to compete in an ever-changing global market.
