Margarita Delgado: Productivity, the labour market and Spain's (non-)
convergence with the euro area
Speech by Ms Margarita Delgado, Acting Governor of the Bank of Spain, at the 3rd
Conference on the Spanish Economy, organised by the Bank of Spain, the Centro de
Estudios Monetarios y Financieros and Universidad Internacional Menéndez Pelayo,
Santander, 5 July 2024.
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I would like to thank the Rector of the Universidad Internacional Menéndez Pelayo and
everyone who has helped organise this conference, and all the speakers and panellists
and each of you here today for taking part.
Allow me to open this second day of the Conference on the Spanish Economy by
underlining its purpose and the importance of the issues it addresses.
This is the third edition of this annual conference organised by the Banco de España,
the Centro de Estudios Monetarios y Financieros (CEMFI) and the Universidad
Internacional Menéndez Pelayo (UIMP). Its aim is to provide a forum for discussion to
share insight into the main problems facing the Spanish economy and possible
solutions.
These discussions must be rooted in rigorous economic research and that is why each
year we seek to gather the academic and research community with a particular interest
in the Spanish economy.
This year, we are focusing on two fundamental challenges that, although addressed last
year, merit special attention owing to their importance and continuing relevance.
The first is the high unemployment rate , the theme of yesterday's two sessions and
panel. The second is low productivity growth , which will be discussed in today's
sessions and panel. Both of these problems have hampered convergence between
income levels in Spain and in other European countries since the end of the last
century. In particular, Spain has not narrowed the gap with per capita income in the EU
since the 1990s. Measured in purchasing power parity terms, Spain's GDP per capita
was 92% of the EU's in 1990, falling to 85% in 2022. Spain's lower productivity explains
most of this difference. In fact, if productivity per worker in Spain were equal to the EU
average (it is currently 11 percentage points (pp) lower), Spain's per capita income
would be just 4% lower than the EU average.
And if the Spanish employment rate were equal to the EU average, the income gap per
capita would shrink by a further 7 pp.
When making this comparison, Spain still benefits from a slight demographic
advantage, since the working age population as a share of the total population -
another component of income per capita - is 3 pp higher than in the EU. However, this
advantage will soon disappear, since the ageing process in Spain is going to take place
more markedly and quickly than in the rest of the EU. The Banco de España's 2022 and
2023 Annual Reports pointed out, in relative detail, the importance of productivity and
unemployment for convergence and the current state of the Spanish labour market.
In addition, it should be noted that we are living in an age of profound technological and
demographic change, which, among other consequences, will make it more difficult to
replace the working population in the coming decades. Indeed, the effects of
demographic change, employment policies, the determinants of productivity and the
role of technological change sit high on the Banco de España's research and analysis
agendas.
Returning to the first of the challenges I mentioned, unemployment , the labour market
in Spain, as in many other countries, has shown remarkable resilience to the shocks
caused by the COVID-19 pandemic and the war in Ukraine, which, along with other
events, have caused a surge in inflation not seen since the 1970s. The inflation rate is
coming down without the interest rate rises that were needed having significantly
dented Spain's growth or employment, which has remained robust, although we should
not forget that the unemployment rate here is still twice as high as the EU average.
The persistence of unemployment at relatively high levels and the fact that, even with a
double-digit rate, the labour market is showing signs of tightness owing to labour
shortages in some segments of the market, offer more than enough reason to continue
analysing the existence of structural unemployment, which may originate in
dysfunctional labour market behaviour.
In addition, there are other factors that will affect the labour market in the coming years
that I would like to mention.
Future technological changes will have huge implications for the functioning of the
labour market, and especially for labour demand and supply, and thus the level of
employment and productivity. The new technological revolution based on the
deployment of robotics and artificial intelligence (AI) innovations may eventually enable
machines and algorithms to independently perform tasks (whether routine, specialised
or otherwise) that could only previously be done by humans. This has given rise to
some concern about the possibility of greater job destruction and lower job creation
than in previous technological revolutions.
It is still too early to anticipate future developments in robotics and AI and how they will
be integrated into productive tasks and thus to predict the scope and effects of new
generative AI models that are capable of carrying out tasks requiring creativity and
innovation - previously the sole domain of humans. However, the reallocation of
employment across sectors and occupations and the demand for new professional
qualifications reflecting new technological developments will undoubtedly accelerate.
Employment policies have a pivotal role to play in minimising the fallout of this shift on
employment and productivity and in adapting labour supply to the new technological
environment.
Demographics are another important factor to take into account: specifically, the ageing
of the working population, which also has implications for the volume of employment, its
sectoral and occupational composition and productivity. These implications reflect both
composition effects, owing to differences in employment and productivity rates by age,
and the fact that employment opportunities for older people and labour productivity
across all age groups tend to be lower in older societies.
As noted, the high structural unemployment rate in Spain is one of the economy's main
challenges and the object of study by the Banco de España. In this regard, Chapter 3 of
1
our 2023 Annual Report offers a thorough review of the Spanish labour market. It
concludes that there is room for improvement both in passive policies, which protect
workers when they lose their jobs, as well as in active policies, which seek to promote
the employability of unemployed workers and their adjustment to the labour demand
existing at any given time.
Moreover, it suggests that anything that hinders sectoral and occupational reallocation
of employment will exacerbate job destruction linked to technological change.
This means that employment protection legislation and collective bargaining regulations
must also be reconsidered in the light of the new technological and demographic
environment.
All of the aforementioned aspects of the Spanish labour market also bear on the second
challenge facing our economy - its , which is a result of many
low level of productivity
factors that interact with each other and should be tackled together.
These factors include, for example, any aspects that constrain business growth and
business demographics in general and the reallocation of productive resources across
sectors and firms, as well as Spain's shortfall in terms of technological capital and
investment in innovation, as described in Chapter 2 of our latest Annual Report.2
The role of these factors in limiting productivity growth in Spain has been
comprehensively documented in the literature, at least to the extent allowed by the
limitations of productivity measurement.
However, if policymakers are to be properly informed, the root cause of these shortfalls
must also be identified.
In this regard, we can highlight two possible underlying factors that ultimately govern
what firms produce and how they produce it and, thus, productivity growth.
First, the regulatory and institutional framework that essentially shapes product markets
(for goods and services) and factors of production (labour and capital). Second, the
availability of human capital, in relation to which education and professional training
play a key role.
As a result, this conference revolves around these two challenges to our economy.
Two complementary papers were presented and discussed during yesterday's
sessions. José Azar and Javier Sanz-Espín put forward estimates of the gap between
wages and the marginal productivity of labour that make it possible to characterise the
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degree of monopsony in the Spanish labour market and how it changed following the
2012 labour reform.
In addition to its usefulness in measuring monopsony among firms in the Spanish
labour market, their work will help guide new lines of research that link competition in
markets and productivity to employment and wages.
Carlos Carrillo presented new results on the dynamics of labour flows between sectors
of the economy and the rigidity of the labour market in specific sectors. His findings on
job search intensity since the pandemic and the tightening of the labour market, as well
as cross-sector heterogeneity, allow us to better understand the factors behind the
coexistence of a high unemployment rate and labour scarcity in various segments of the
Spanish labour market.
At the upcoming session on productivity, Matilde Mas will present her work highlighting
the importance of complementarity between technological capital, intangible capital and
worker upskilling when maximising the impact of new technologies on productivity
growth.
The apparent paradox in recent years of intense technological change existing
alongside low productivity growth could owe, at least in part, to a certain inability to
retrain workers and adapt firms' organisational structures to this change.
Carolina Villegas-Sánchez will present her work on the role of growth and business
demographics as a driver of productivity in Spain, from an international perspective.
Among other stylised facts, she will show that business start-ups and the differences in
size between younger and more mature firms have been in decline since the financial
crisis. In the case of Spain, this could point to more robust business growth and an
improvement in the sharing of know-how between frontier firms and others, in contrast
to what is seen in countries such as the United States.
I am convinced that the papers presented at this conference and the discussions that
take place around them, and in each of the panels, will make a significant contribution
to improving our understanding and communication of the Spanish economy's structural
problems.
Thank you very much.
1https://www.bde.es/f/webbe/SES/Secciones/Publicaciones/PublicacionesAnuales
/InformesAnuales/23/Files/InfAnual_2023_Cap3_En.pdf
2https://www.bde.es/f/webbe/SES/Secciones/Publicaciones/PublicacionesAnuales
/InformesAnuales/23/Files/InfAnual_2023_Cap2_En.pdf
3A market condition in which there is only one buyer for a product or service.