This erosion of employability is greater than that experienced, for example, by workers in Austria, Denmark, France and Sweden, a circumstance not attributable to cross-country differences in the composition of workers or jobs. The paper also finds that the variable that most increases employability in these situations is spending on active policies. It is thus important to design an active labour market policy system that is efficient and effective. In this respect, the Spanish Government has undertaken to enact an employment law before end-2022 to make the State employment system more effective. Among other aspects, the law aims to improve the internal management of the data underpinning unemployment beneﬁts and active policies − for the purpose of their assessment −, digitalise information for the public and combat fraud. (iii) The challenge of addressing inequality Levels of inequality in Spain were already high before the outbreak of the pandemic and, despite the key mitigating role played by public policy, they are likely to have increased as a result of the health crisis. To reduce the adverse – economic and social – effects of high levels of inequality, public policy measures must be rolled out and continuously assessed across a wide range of areas. Examples here include labour market regulation and education policy. In particular, improving the educational attainment levels of the most disadvantaged groups is a highly effective means of boosting their income, levelling up job opportunities ex ante and enhancing the prospects of future generations. Nonetheless, incomes and housing policies, among others, are also important.

Should there be a greater fiscal adjustment, for example if the structural primary balance improves by 0.5 pp of potential output each year until reaching equilibrium – a path more consistent with the Stability and Growth Pact rules –, public debt could fall to 82% of GDP by 2040. Were this adjustment also accompanied by an ambitious package of structural reforms, the government debt ratio could be around 79% of GDP by 2040. In short, in order to bolster the sustainability of public finances, a multi-annual fiscal consolidation plan will have to be implemented once the pandemic is over and the adverse economic effects of the war in Ukraine have diminished. Although the necessary fiscal adjustment should be carried out gradually, the definition and early communication of this plan – in which all tiers of general government should participate – would be desirable, as this would help boost confidence and certainty about Spanish economic policies. Such confidence is particularly important amid the current context of monetary policy normalisation and the consequent tightening of financial conditions. As part of this plan, government expenditure policies must be subject to an exhaustive review to increase expenditure efficiency and to optimise the distribution between items in order to promote more robust and equitable economic growth. For instance, the weight of education and public investment expenditure in Spain is below the EU average,18 despite the broad consensus regarding the importance of these items to drive economic growth and mitigate inequality.