The great threat to wages and productivity of the future is Spain’s own economy

Spain has suffered for decades from low productivity and mediocre growth in real wages (discounting inflation). Politicians, media or analysts try to find quick solutions (minimum wage, Rider Law …) to a complex problem whose permanent solution may require years of costly transformation and investment. The problem of productivity has to do, above all, with the sectoral composition of the Spanish economy, highly focused on sectors with low added value, not very capital intensive and whose productivity growth is relatively much lower. Given the high weight of these sectors, the economy of Spain is in a very compromised situation to face the challenges of the future.

A new work published by the Bank of Spain has warned that the sectors that have all the ballots to be the big winners in the coming years in the global economy they have a relatively small weight in the Spanish economy. These sectors are technology intensive, show productivity growths above the average and tend to pay better in terms of the labor factor (their employees).

The BdE study explains that these economic sectors, such as the manufacture of computer and electronic products, professional, scientific and technical activities, R&D, information and communications, and financial and insurance activities, among others , are very well positioned in terms of both productivity and resilience going forward, but nevertheless they have a relative weight in Spanish GDP that is lower than that of other neighboring countries.

On the contrary, the worst-positioned sectors for the future, such as physical commerce, hospitality or transport, have a relatively higher weight in the national economy. The high weight of these sectors could also explain the mystery of the low growth of the Spanish economy during the current recovery. It is these sectors (with low added value and productivity) that are bearing the burden of job creation, which in turn could explain the sharp drop in productivity per job and hour worked in the third quarter of this year.

The ‘top’ sectors

Specifically, the weight of these “top sectors” on the total gross added value (GVA) is 12.6% in Spain, compared to 15.1%, 17.4% and 22.5% in Germany, France and The United States, respectively, as highlighted by the Bank of Spain in its sectoral analysis of future challenges for the Spanish economy.

The monetary authority points out that the health crisis caused by Covid-19 has highlighted the importance of sectoral heterogeneity when it comes to understanding the economic impact of the shocks that affect an economy.

In addition, this work emphasizes that the strong recession has occurred in a context in whiche the Spanish economy is immersed in a series of structural challenges, Among which are the reduced productivity growth, the process of technological change, in particular that associated with digitization, climate change and population aging.

In this scenario, the Bank of Spain document ensures that the sectors with the best relative position to face the different challenges analyzed exhibit a “relatively low” weight in the productive structure of the Spanish economy, lower than that observed in other advanced economies.

Productivity and future

On the contrary, the sectors that can be considered key in the economy present a greater degree of vulnerability to future challenges. The BdE’s own economists explain that “a good part of the manufacturing and energy supply industries are very central sectors due to their knock-on effects on other sectors and present high relative levels of productivity, but they are more vulnerable to challenges such as climate change, given its highest level of emissions. “

On his side, he points out that real estate and social services activities are better positioned in the face of these changes, especially in the face of aging, but their performance in terms of productivity is lower.

Lastly, the Bank of Spain identifies some sectors that present deficiencies in terms of both productivity and resilience, such as the hospitality industry, the primary sector and transport services.

What can be done?

The authors propose that given the goal of achieving a “sustained and sustainable” productivity growth, “key” to ensure an increase in long-term economic well-being, it is necessary to pay special attention to reallocation between sectors, “which may be a complex and expensive process, but also fundamental when it comes to improving the capacity of the Spanish economy to face the future challenges analyzed “.

From this point of view, the Bank of Spain affirms that the improvement of the mechanisms that facilitate the sectoral reallocation and between companies of the productive resources, in particular of the labor factor, seems a “primary objective”. However, this will not be a quick or easy process. The educational system must play a key role in transforming human capital and adapting it to this transformation of the economy.

However, it indicates that given that, a priori, the transferability of knowledge between potentially losing and potentially winning sectors does not seem particularly high, it is key strengthening learning systems continuous of workers.

Likewise, it warns that restructuring processes usually entail transition costs that are concentrated in certain groups of the potential contracting sectors, for which it states that it would also be necessary to assess in what aspects the existing social protection nets must be strengthened.